Figure 10-6
-Refer to Figure 10-6.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?
A) An amount equal to P' minus P.
B) An amount equal to P'.
C) An amount equal to P.
D) An amount equal to the external cost.

Question

Figure 10-6 
-Refer to Figure 10-6.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?
A) An amount equal to P' minus P. 
B) An amount equal to P'. 
C) An amount equal to P. 
D) An amount equal to the external cost.

Quizplus · Accepted Answer

A corrective tax should be equal to the external cost to internalize the externality and achieve the socially-optimal outcome.

Figure 10-6 -Refer to Figure 10-6.How Large Would a Corrective Tax Need