A Tax Equal to the External Marginal Cost of an Activity

question 217

Multiple Choice

A tax equal to the external marginal cost of an activity yields the efficient level of production because the tax

• A) achieves the competitive equilibrium.
• B) forces producers to face all costs of production including the external cost.
• C) ensures greater profits for the firm.
• D) eliminates all pollution.

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Definitions:

Inventory

The raw materials, work-in-progress products, and finished goods that a company holds for the purpose of sale in the future.

Cost of Goods Sold

Expenses directly linked to the creation of a company's sold products.

Sales

Sales refer to the transactions where goods or services are exchanged for money, representing the primary source of revenue for most businesses.

Receivables Period

The average time a business spends waiting for its customers to settle their dues.