Figure 10-14
-Refer to Figure 10-14. Which of the following statements is correct?
A) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0.
B) To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0.
C) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1.
D) There is no externality in this market.

Question

Figure 10-14 
-Refer to Figure 10-14. Which of the following statements is correct?
A) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B) To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D) There is no externality in this market.

Quizplus · Accepted Answer

To induce firms to internalize the externality, the government should impose a tax equal to the difference between the marginal social cost and the marginal private cost, which is P2 - P0.

Figure 10-14 -Refer to Figure 10-14. Which of the Following Statements Is