One way to make consumers take a negative externality into account in their demand decision is to:
A) place a tax on the item.
B) subsidize the purchase of the item.
C) give suppliers a production credit.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

Placing a tax on the item will increase the price that consumers have to pay, making the item less attractive and reducing demand. This tax can be set to reflect the cost of the negative externality, such as the cost of pollution caused by producing the item. By making consumers pay for this cost, they will take it into account in their demand decision and may choose to consume less of the item.

One Way to Make Consumers Take a Negative Externality into Account