In order to reach the social optimum, the government could

Question

BlackTom AI · Accepted Answer

To reach the social optimum in a market with a negative externality, government intervention often involves a tax (Pigouvian tax) equal to the marginal external cost at the socially optimal output, so that the private cost plus tax equals the social cost.
Option 1: impose a tax of $8 per unit on plastics. This choice aligns the private marginal cost with the social marginal cost at the socially optimal quantity, internalizing the external cost and moving the market toward the efficient outcome.
Option 2: impose a tax of $6 per unit on plastics. While a tax is better than no intervention, a $6 tax would likely be smaller than the required Pigouvian tax, causing less internalization of the external cost and thus a market outcome away from the social optimum.
Option 3: offer a subsidy of $6 per unit on plastics. Subsidies for a negative externality worsen the market failure by encouraging more production and consumption of the good with the external cost, pulling the outcome further from the social optimum.
Option 4: impose a tax of $2 per unit on plastics. This tax is even smaller and would provide even less incentive to reduce production to the socially optimal level, leaving the market farther from the efficient outcome.
Overall, only the $8 per unit tax directly addresses the external cost at the optimum, while the other policies either undercharge internalization, subsidize the harmful activity, or under-tax relative to the required level.

ECON1-TTh Chapter 10 Assignment

In order to reach the social optimum, the government could

View Explanation

Log in for full answers

Similar Questions

Question54 Who wins from implementing an output tax on a good with negative environmental externality? Producers Government Consumers All of the other options ResetMaximum marks: 1 Flag question undefined

You have the following PMC, MD and SMB: PMC = 15 + 2Q MD = 1.2Q2 SMB = 70 - 3Q Find the Pigouvian tax t*

Now the government is considering imposing extra tax on polluting industry. From the first table, what is the optimal tax?

When production or consumption of a product results in negative externalities, a suitable method of government intervention may be

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the of reducing the emissions is .

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler

ECON1-TTh Chapter 10 Assignment

In order to reach the social optimum, the government could

View Explanation

Log in for full answers

Similar Questions

Question54 Who wins from implementing an output tax on a good with negative environmental externality? Producers Government Consumers All of the other options ResetMaximum marks: 1 Flag question undefined

You have the following PMC, MD and SMB: PMC = 15 + 2Q MD = 1.2Q2 SMB = 70 - 3Q Find the Pigouvian tax t*

Now the government is considering imposing extra tax on polluting industry. From the first table, what is the optimal tax?

When production or consumption of a product results in negative externalities, a suitable method of government intervention may be

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the ______________________ of reducing the emissions is ______________________.

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the of reducing the emissions is .