A negative externality such as pollution can be corrected by
A) a subsidy to producers.
B) a tax on producers.
C) a subsidy to consumers.
D) a stimulus to production.

Question

Quizplus · Accepted Answer

A tax on producers would force them to internalize the cost of pollution, making it more expensive for them to produce goods that create negative externalities. This would incentivize them to reduce pollution by investing in cleaner production methods, technologies, or equipment. As a result, this would lead to a reduction in pollution levels and a more efficient allocation of resources. Choices A, C, and D are not effective in correcting negative externalities because they do not directly address the root cause of the problem.

A Negative Externality Such as Pollution Can Be Corrected by