Question

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except

A) an increase in demand for the good.
B) an increase in the equilibrium market price.
C) a decrease in the equilibrium quantity produced and consumed
D) a decrease in market supply of the good.

Answer 1

C) a decrease in the equilibrium quantity produced and consumed

Step-by-step explanation:

Marginal external cost is the change in the cost to parties other than the producer or buyer of a good or service due to the production of an extra unit of the good or service.