Question

A Pigovian tax is A. a tax that creates deadweight loss. B. a tax that creates an externality. C. a tax to bring about an efficient level of output in the presence of externalities. D. a cost that parties incur in the process of agreeing to and carrying out an exchange of goods and services. E. a tax to completely eliminate externalities.

Answer 1

C. a tax to bring about an efficient level of output in the presence of externalities.

Step-by-step explanation:

A Pigovian tax looks for how to deal with externalities. It propose the state do taxation to make the economic cost equal to social cost thus; eliminate the effect of the externalities but not the externalities itself. On negatives externalities, it adds to the company's cost to represent the social effect.

If the externalities are positivites it subsidies the company to represent the greater social output generated from the externalities.