Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct? A)To induce firms to internalize the externality in this market, the government should impose a tax measured by P₂ - P₀. B)To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P₂ - P₀. C)To induce firms to internalize the externality in this market, the government should impose a tax measured by P₂ - P₁. D)There is no externality in this market.

Question

Quizplus · Accepted Answer

To induce firms to internalize the externality, the government should impose a tax equal to the difference between the marginal social cost and the marginal private cost, which is P2 - P0.

Figure 10-14 -Refer to Figure 10-14. Which of the Following Statements Is