Comment on the following statement: "Taxes on externality-producing activities are generally used to eliminate externalities."

Question

Quizplus · Accepted Answer

The Answer is The statement is false. Taxes are used to force decision makers to consider the full costs of their actions. This does not mean that the decision maker will decide to stop the externality-producing activity but he will generally scale back the activity.

Comment on the Following Statement: "Taxes on Externality-Producing Activities Are