A tax on cigarettes will have the effect of properly dealing with the externality unless the tax

Question

Quizplus · Accepted Answer

A tax on cigarettes aims to internalize the external costs associated with smoking, such as healthcare costs and environmental damage. If the tax is lower than the marginal external costs, it won't fully cover these costs. Conversely, if the tax is too high, it might lead to the creation of a black market, undermining the tax's effectiveness in reducing consumption and addressing the externality. Therefore, both conditions must be avoided for the tax to properly deal with the externality.

A Tax on Cigarettes Will Have the Effect of Properly