Suppose a Tax Equal to the Value of the Marginal

question 29

Multiple Choice

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

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Definitions:

Payback Period

The amount of time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Salvage Value

The projected amount an asset is expected to generate when it is sold after its period of utility has ended.

Operating Costs

Expenses related to the day-to-day operations of a business, including rent, utilities, and salaries.

Useful Life

The expected period over which an asset is anticipated to be productive or beneficial for its owner.