A Pigouvian tax can lead to the efficient level of production and consumption of:
A)a public good.
B)a common resource.
C)an artificially scarce good.
D)no goods since all taxes cause inefficiency.

Question

Quizplus · Accepted Answer

A Pigouvian tax is a tax imposed on a good that generates negative externalities, such as pollution from the production of a common resource. By increasing the cost of production, the tax shifts the supply curve to the left, reducing the quantity produced and consumed to a socially optimal level. Therefore, a Pigouvian tax leads to the efficient level of production and consumption of a common resource.

A Pigouvian Tax Can Lead to the Efficient Level of Production