Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause
A) consumers to internalize the externality.
B) producers to internalize the externality.
C) the external cost to drinking soda to become a private cost paid by the government.
D) the external cost to drinking soda to become a private cost paid by producers.

Question

Quizplus · Accepted Answer

By imposing a tax on soda, the government increases the price of soda, which will lead to a decrease in demand from consumers. This decrease in demand will internalize the negative externality of drinking soda, as consumers will now have to pay the full cost of their consumption. By paying the tax, consumers will pay a price that more accurately reflects the total cost of drinking soda.

Some Policymakers Have Argue That Products Like Cigarettes, Alcohol, and Sweetened