Figure 10-5 -Refer to Figure 10-5.Which of the following statements is correct? A) To induce firms to internalize the externality in this market,the government should impose a tax measured by P₂- P₀. B) To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P₂ - P₀. C) To induce firms to internalize the externality in this market,the government should impose a tax measured by P₂ - P₁. D) There is no externality in this market.

Question

Quizplus · Accepted Answer

To induce firms to internalize the externality, the government should impose a tax equal to the difference between the marginal social cost and the marginal private cost, which is P2 - P0.

Figure 10-5 -Refer to Figure 10-5.Which of the Following Statements Is Correct