When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero,they must be:
A) imposing a tariff.
B) offering a Coase tax.
C) mandating a quota.
D) imposing a tax.

Question

Quizplus · Accepted Answer

When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero, they must be imposing a tax. This is because a tax will shift the supply curve to the left, which will increase the price of the good and reduce the quantity demanded. This will lead to a reduction in the externality.

When Government Corrects a Market with an Externality Present by Allowing