If a tin of sardines creates a noxious odor for non-sardine-eaters equivalent to $1 per tin, a $1 per tin tax on sardines would:
A) create a deadweight loss, as all taxes do, and correct the odorous externality.
B) decrease deadweight loss but fail to correct the odorous externality.
C) create a deadweight loss and fail to correct the odorous externality.
D) decrease deadweight loss by correcting the odorous externality.

Question

Quizplus · Accepted Answer

A $1 per tin tax on sardines would internalize the externality by making sardine-eaters pay for the odor they impose on others, thus reducing the deadweight loss associated with the externality.

If a Tin of Sardines Creates a Noxious Odor for Non-Sardine-Eaters