Suppose That Alcohol Consumption Creates a Negative Externality

question 353

Multiple Choice

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

• A)impose a tax on alcohol that is equal to the per-unit externality
• B)offer a subsidy on alcohol that is equal to the per-unit externality
• C)impose a regulation limiting the amount of alcohol that each consumer can purchase
• D)nothing

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Definitions:

Progressive

Pertaining to a form of taxation in which the tax rate increases as the taxable amount increases, typically applied to income tax.

Regressive

A term describing a tax system where the tax rate decreases as the taxable amount increases, imposing a greater burden on lower-income earners.

Federal Taxes

Taxes levied by the federal government on income, investments, and goods and services, which fund national programs and services.

State And Local Taxes

Taxes levied by individual states and localities, which can include income, sales, property, and other types of taxes.