When the Production of a Good Creates an External Cost

question 264

Multiple Choice

When the production of a good creates an external cost, by setting the tax rate equal to the ________, firms can be made to behave in the same way as they would if they bore the cost of the externality directly.

• A) marginal external cost
• B) marginal social benefit
• C) marginal private benefit
• D) marginal social cost

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