Efficiency is reached by allocating resources to those who have the greatest willingness to pay for them.This can be achieved in a market where a negative externality is present by:
A) taxing consumers.
B) giving consumers a subsidy.
C) place a quota at the efficient level.
D) All of these will achieve efficiency.

Question

Quizplus · Accepted Answer

Taxing consumers who create negative externalities will increase their cost of consumption and reduce their willingness to pay for the product. This will lead to a decrease in demand and consumption, which in turn will reduce the negative externalities produced. This approach is known as a Pigouvian tax and is the most efficient way to internalize the negative externality in a market. Both options B and C involve giving subsidies or quotas, which would be counterproductive in this case as they would encourage more consumption and more negative externalities.

Efficiency Is Reached by Allocating Resources to Those Who Have