Is a uniform per-unit tax on firms that cause an externality an optimal policy for correcting the externality? Explain
What will be an ideal response?
No. The concept of externality is about the economic costs rather than the amount of externality. The economic costs or damages can vary across different locations so that the optimal tax on pollution should also vary from location to location, depending on the size of economic damages.
You might also like to view...
Suppose the country of Tiny Town experienced frictional unemployment. This frictional unemployment would
A) definitely signal that the country is in a recession. B) be considered a natural occurrence in a growing economy. C) signal that there are more job leavers than job losers. D) signal that the number of discouraged workers is growing.
The unregulated, single-price monopolist illustrated in the figure above has a total revenue of
A) $8.00 per day. B) $16.00 per day. C) $36.00 per day. D) $40.00 per day.