In order for a Pigovian tax to be effective,it must:
A) be imposed on the consumer.
B) be imposed on the producer.
C) be imposed on those affected by the externality.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

A Pigovian tax is effective when it is set equal to the external cost of the negative externality, regardless of whether it is imposed on the consumer or producer. The key is that it corrects the market outcome by internalizing the externality.

In Order for a Pigovian Tax to Be Effective,it Must