Suppose That Cigarette Smokers Create a Negative Externality

question 6

Multiple Choice

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

• A)They are equal.
• B)The after-tax equilibrium quantity is greater than the socially optimal quantity.
• C)The after-tax equilibrium quantity is less than the socially optimal quantity.
• D)There is not enough information to answer the question.

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Definitions:

Universal Principles Stage

A theoretical stage in moral development proposed by Lawrence Kohlberg, where moral reasoning is based on internalized and universal principles of justice.

Greatest Good

A principle aimed at achieving the maximum positive outcome or benefit for the largest number of people.

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Deliberate manipulation or falsification of financial records and statements to create a false appearance of a company's financial health.

Chief Operating Officer

A senior executive tasked with overseeing the day-to-day administrative and operational functions of a company.