When negative externalities exist in a market,if the producers are forced to pay a Pigouvian tax then:
A) those who interact in the market will lose surplus.
B) those who interact in the market will gain surplus.
C) producers will gain surplus.
D) those who do not interact in the market but are affected by the externality will lose surplus.

Question

Quizplus · Accepted Answer

When producers are forced to pay a Pigouvian tax, they will increase their costs of production, which will lead to a decrease in supply and an increase in price. As a result, consumers will lose their surplus. Thus, those who interact in the market will lose surplus.

When Negative Externalities Exist in a Market,if the Producers Are