A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.

Question

Quizplus · Accepted Answer

A corrective tax is meant to internalize the negative externality by making the cost to the producer and the society the same. This is achieved by taxing the producer an amount equal to the marginal external cost, which is the cost of the negative externality imposed on the society. Therefore, the best choice is B, which is the marginal external cost.

A Corrective Tax Designed to Resolve a Negative Externality Problem