According to Pigou the best way to deal with a negative externality is to
A)Allow both parties to negotiate
B)Assign liability to the party with the highest cost of prevention
C)Assign liability to the party with the lowest cost of prevention
D)Tax it

Question

Quizplus · Accepted Answer

Pigou's solution to negative externalities is to tax the activity that generates the externality to internalize the costs and discourage the activity. This tax should be set at the level that makes the social cost equal to the private cost.

According to Pigou the Best Way to Deal with a Negative