Correcting a market with an externality through taxation is _________ correcting it through a quota.
A) more efficient than
B) less efficient than
C) just as efficient as
D) Any of these statements could be true depending on whether the tax is imposed on the buyer or seller.

Question

Quizplus · Accepted Answer

Taxation is a more efficient way of correcting a market with an externality compared to a quota. Taxation provides incentives for both buyers and sellers to internalize the external cost and adjust their behavior accordingly. On the other hand, a quota imposes a specific limit on the quantity of the good that can be produced, which may not necessarily result in an efficient outcome.

Correcting a Market with an Externality Through Taxation Is _________