To achieve a socially efficient level of output, government should impose a pollution tax that is equal to:
A) Private marginal cost.
B) Private social cost.
C) Marginal externality cost.
D) An amount that is necessary to reduce the level of pollution to zero.
E) An amount that will maximize consumer surplus.

Question

Quizplus · Accepted Answer

The correct answer is C) Marginal externality cost. To achieve a socially efficient level of output, the government should impose a pollution tax equal to the marginal externality cost. This ensures that the external costs of pollution are internalized, aligning private costs with social costs and leading to an efficient allocation of resources.

To Achieve a Socially Efficient Level of Output, Government Should