The strongest case for government with respect to a negative externality is that government needs to set the
A) subsidy equal to the marginal private benefits.
B) tax equal to the marginal external costs plus $1.
C) tax slightly below the marginal external costs.
D) tax equal to the marginal external costs.
E) subsidy equal to the marginal social benefits.
D
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What will be an ideal response?
Suppose studies showed that only 15 percent of all teens wear their bike helmets while riding their bikes. If policymakers wish to have more teens wear their bike helmets, they should:
A. inform teens of the social norm. B. not inform teens of the social norm. C. Informing them of the social norm will have no impact on their individual situation. D. The statistic is likely to influence their personal decision, but it is impossible to predict in what way without more information.