Suppose a Pigovian Tax Is Imposed on a Market That

question 178

Short Answer

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command-and-control policy or is it a market-based policy?

---

Definitions:

Average Variable Cost Curve

A graphical representation showing how the average variable cost changes as the quantity of output is increased.

Firm

An organization that produces goods or services for sale, operating with the aim of making a profit.

Variable Costs

Costs that change in proportion to the level of production or sales volume.

Profit-maximizing Output

The point of production where a company reaches its maximum profit potential.