When farmers raise pigs, there are a number of external costs.In particular, raising pigs generates methane gas.If the marginal external cost is $100 per pig and the government imposes a tax of $200 per pig, then at the equilibrium price and quantity of pigs:
A)too few pigs will be raised.
B)the price will be less than the marginal social cost.
C)the price will be less than the marginal social benefit.
D)the price will be less than the marginal cost to pig farmers.

Question

Quizplus · Accepted Answer

The marginal external cost of raising pigs is $100 per pig, which means that the price paid by consumers does not reflect the full cost of producing each pig. The government imposes a tax of $200 per pig, which increases the cost of production and reduces the equilibrium quantity of pigs. The new equilibrium price will be higher than the original price, but it will still be lower than the marginal social cost. However, since the tax exceeds the marginal external cost, it will result in too few pigs being raised.

When Farmers Raise Pigs, There Are a Number of External