Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer
A)externalize the positive externality.
B)externalize the negative externality.
C)internalize the positive externality.
D)internalize the negative externality.

Question

Quizplus · Accepted Answer

Corrective taxes are a type of Pigovian tax which are imposed by governments to internalize the negative externalities which are generated by a particular economic activity. In the case of the producer of a nasty smell, the negative externality is the unpleasant odor that spreads to the surrounding areas, causing discomfort to the local residents. By imposing a corrective tax on the producer, the government is effectively internalizing the negative externality, as the producer is now forced to pay for the costs of their activity, which are not reflected in the market price of their product. This creates an incentive for the producer to reduce their emissions, thereby reducing the amount of smell generated, and ultimately benefiting the local residents. Therefore, the correct choice is D, internalize the negative externality.

Corrective Taxes That Are Imposed Upon the Producer of a Nasty