An optimal corrective tax should be placed on _____.
A)the sellers of the externality-generating activity
B)the inputs into the externality-generating activity
C)the externality-generating activity
D)the purchasers of the output of the externality-generating activity

Question

Quizplus · Accepted Answer

The optimal corrective tax should be placed on the externality-generating activity itself. This will increase the cost of producing the activity and discourage its production, leading to a reduction in the associated negative externality. Taxing the sellers, inputs or purchasers does not directly address the externality-generating activity and may not be as effective in reducing the externality.

An Optimal Corrective Tax Should Be Placed on _____