Who is affected when a Pigouvian tax is imposed on a market with a negative production externality?
A) Producers
B) Consumers
C) Those affected by the externality
D) All of these groups are affected when it becomes internalized.

Question

Quizplus · Accepted Answer

When a Pigouvian tax is imposed on a market with negative production externality, all the groups are affected. Producers are affected because they have to pay the tax, which increases their cost of production. Consumers are affected because the tax may lead to an increase in prices. Those affected by the externality are affected because the imposition of the tax helps to internalize the cost of the externality, which reduces its negative impact on society. Therefore, all the groups are affected when a Pigouvian tax is imposed on a market with negative production externality.

Who Is Affected When a Pigouvian Tax Is Imposed on a Market