A Pigouvian tax is a tax designed to ________.
A) induce the consumers of a good to reduce their consumption of the good
B) induce the producers generating negative externalities to reduce production
C) induce the producers generating positive externalities to reduce production
D) force the producers to stop the production of a good in the short run

Question

Quizplus · Accepted Answer

A Pigouvian tax is designed to address negative externalities, which are costs imposed on society due to the production or consumption of a good that are not reflected in the market price. By imposing a tax on the producers, the cost of the negative externality is internalized, making the producers accountable for the social costs they impose. This tax would incentivize producers to reduce production and find ways to reduce the negative externalities they generate.

A Pigouvian Tax Is a Tax Designed to ________