Figure 10-17
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?
A)An amount equal to P' minus P.
B)An amount equal to P'.
C)An amount equal to P.
D)An amount equal to the external cost.

Question

Figure 10-17 
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?
A)An amount equal to P' minus P. 
B)An amount equal to P'. 
C)An amount equal to P. 
D)An amount equal to the external cost.

Quizplus · Accepted Answer

A corrective tax should be equal to the external cost to internalize the externality and achieve the socially-optimal outcome.

Figure 10-17 -Refer to Figure 10-17. How Large Would a Corrective Tax