Economists propose that a tax intended to correct for the presence of an externality should be based on:
A)the action that creates the externality, rather than the externality itself.
B)the externality itself, rather than the action that creates it.
C)what is simplest to implement.
D)what will likely generate the most revenue.

Question

Quizplus · Accepted Answer

A tax intended to correct for an externality, known as a Pigovian tax, should be based on the externality itself to internalize the external costs or benefits, aligning private costs with social costs.

Economists Propose That a Tax Intended to Correct for the Presence