The government wants to address the pollution associated with the production of a good by introducing a tax on negative externality. The government is unsure about the magnitude of the negative externality (social cost of pollution) and hence it is considering two options: a high tax and a low tax option. Which statement(s) is/are true? Mark all that applies. Group of answer choices The government’s tax revenue will be higher under the high tax option. The government’s tax revenue may not be higher under the high tax options. The consumption level of the good may be lower under the high tax option. Regardless of whether the high tax or the low tax option is introduced, the cost of the tax is still lower than the social cost of pollution. Both high tax and low tax options are c
The government wants to address the pollution associated with the production of a good by introducing a tax on negative externality. The government is unsure about the magnitude of the negative externality (social cost of pollution) and hence it is considering two options: a high tax and a low tax option. Which statement(s) is/are true? Mark all that applies. Group of answer choices The government’s tax revenue will be higher under the high tax option. The government’s tax revenue may not be higher under the high tax options. The consumption level of the good may be lower under the high tax option. Regardless of whether the high tax or the low tax option is introduced, the cost of the tax is still lower than the social cost of pollution. Both high tax and low tax options are c
Chapter8: Market Failure
Section: Chapter Questions
Problem 1P
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The government wants to address the pollution associated with the production of a good by introducing a tax on negative externality. The government is unsure about the magnitude of the negative externality (social cost of pollution) and hence it is considering two options: a high tax and a low tax option.
Which statement(s) is/are true? Mark all that applies.
Group of answer choices
The government’s tax revenue will be higher under the high tax option.
The government’s tax revenue may not be higher under the high tax options.
The consumption level of the good may be lower under the high tax option.
Regardless of whether the high tax or the low tax option is introduced, the cost of the tax is still lower than the social cost of pollution.
Both high tax and low tax options are cost-effective in achieving a given level of pollution reduction as long as the same tax applies to all polluting sources.
Only the high tax option is cost-effective.
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