The problems with letting the market determine the amount of a certain good to be produced if there is an external cost, or negative externality, associated with its production. Introduction: Externality is the cost or benefit of a commodity that affects neither the producer nor the consumer but the third party in a transaction. Example of such externalities is the air pollution created by factories, cost of dumping the waste generated by industries, noise pollution by jet planes and loudspeakers, etc. However, these are social costs to the companies and they might not be accounted for in the price of the commodity by the producer.

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Chapter 3, Problem 3.12P

To determine

The problems with letting the market determine the amount of a certain good to be produced if there is an external cost, or negative externality, associated with its production.

Introduction:

Externality is the cost or benefit of a commodity that affects neither the producer nor the consumer but the third party in a transaction. Example of such externalities is the air pollution created by factories, cost of dumping the waste generated by industries, noise pollution by jet planes and loudspeakers, etc. However, these are social costs to the companies and they might not be accounted for in the price of the commodity by the producer.

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Discuss the preferred deterrent method employed by the Zambian government to combat tax evasion, monetary fines. As noted in the reading the potential penalty for corporate tax evasion is a fine of 52.5% of the amount evaded plus interest assessed at 5% annually along with a possibility of jail time. In general, monetary fines as a deterrent are preferred to blacklisting of company directors, revoking business operation licenses, or calling for prison sentences. Do you agree with this preference? Should companies that are guilty of tax evasion face something more severe than a monetary fine? Something less severe? Should the fine and interest amount be set at a different rate? If so at why? Provide support and rationale for your responses.

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Discuss the preferred deterrent method employed by the Zambian government to combat tax evasion, monetary fines. As noted in the reading the potential penalty for corporate tax evasion is a fine of 52.5% of the amount evaded plus interest assessed at 5% annually along with a possibility of jail time. In general, monetary fines as a deterrent are preferred to blacklisting of company directors, revoking business operation licenses, or calling for prison sentences. Do you agree with this preference? Should companies that are guilty of tax evasion face something more severe than a monetary fine? Something less severe? Should the fine and interest amount be set at a different rate? If so at why? Provide support and rationale for your responses.