Graph 10-4
-Referring to Graph 10-4, which curve best represents a Pigovian tax?
A)A
B)B
C)C

Question

Graph 10-4 
-Referring to Graph 10-4, which curve best represents a Pigovian tax?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

A Pigovian tax is a tax imposed on a negative externality, such as pollution. The tax is designed to internalize the cost of the externality, so that the producer takes into account the full social cost of their production. In Graph 10-4, curve A represents a Pigovian tax, as it increases the marginal cost of production by the amount of the tax, which is equal to the marginal external cost.

Graph 10-4 -Referring to Graph 10-4, Which Curve Best Represents a Pigovian