If those who consumed common resources were subject to a tax that was equal to the external costs that they imposed due to the negative externality created:
A) an efficient level would be reached.
B) total surplus would be maximized for the whole society.
C) individuals would consume less.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

If those who consumed common resources were subject to a tax that was equal to the external costs they imposed due to negative externality, an efficient level would be reached, total surplus would be maximized for the whole society, and individuals would consume less. Therefore, all of these statements are true. By internalizing the external costs, the market mechanism would work to allocate resources efficiently, and individuals would consume less due to the increased cost of consuming the common resource. As a result, total surplus for society as a whole would be maximized.

If Those Who Consumed Common Resources Were Subject to a Tax