Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then
A)the after-tax equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
B)the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
C)the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

When the government imposes a tax equal to the external cost, it internalizes the externality, leading to a market outcome where the quantity of cigarettes smoked equals the socially optimal level.

Suppose That Smoking Creates a Negative Externality