Explain how a Pigovian tax works

What will be an ideal response?

A Pigovian tax is a method of dealing with externalities. The government sets the tax rate equal to the marginal external cost, making polluting firms behave in the same way as they would if they bore the cost of the externality directly because their costs are the same as if they paid for the pollution directly. In this case, the amount of pollution is reduced to the efficient level.

Economics

You might also like to view...

Suppose early Friday morning the economics club buys 200 donuts at 25 cents each, and plans to sell all of them later in the day on campus for 50 cents each

Only 60 donuts are sold at 50 cents, however, and by early afternoon the club is seen trying to unload the remaining donuts for 10 cents each. What can we conclude? A) The club was clearly engaging in predatory pricing of donuts. B) The club was clearly selling below cost. C) The club clearly misjudged the demand for donuts. D) All of the above are true.

Economics

If the Japanese price level falls relative to the price level in the United States, then:

a. Japanese buy less U.S. exports. b. the demand for dollars decreases. c. the supply of dollars increases. d. the value of the dollar falls. e. all of these are true.

Economics