An example of a Pigovian tax would be a tax on:
A) income.
B) cigarettes.
C) corporate capital gains.
D) All of these are examples.

Question

Quizplus · Accepted Answer

A Pigovian tax is designed to correct a market failure, such as a negative externality. Cigarette smoking is a typical example of a negative externality, as the harm caused by smoking is not fully borne by the smoker but also affects those around them (secondhand smoke) and the healthcare system (costs of treating smoking-related illnesses). By imposing a tax on cigarettes, the government can discourage smoking and provide an incentive for individuals to internalize the full cost of their actions. Taxes on income and corporate capital gains, on the other hand, do not address market failures and are not considered Pigovian taxes.

An Example of a Pigovian Tax Would Be a Tax