A tax that creates an excess burden may nevertheless improve efficiency if
A)consumption of the good has been generating beneficial externalities.
B)consumption of the good has been generating no externalities.
C)consumption of the good has been generating detrimental externalities.
D)the good has been supplied by a monopolist.

Question

Quizplus · Accepted Answer

Consumption of a good that generates detrimental externalities (negative externalities) can lead to overconsumption from a societal perspective, as the social cost exceeds the private cost. Imposing a tax on such goods can help align the private cost with the social cost, thus potentially improving efficiency by reducing consumption to a level that reflects the true cost to society.

A Tax That Creates an Excess Burden May Nevertheless Improve