If the Revenues from a Pigovian Tax Are Not Directed

question 71

Multiple Choice

If the revenues from a Pigovian tax are not directed to those who are affected by the externality,the outcome:

• A) is efficient and maximizes surplus.
• B) is not efficient and does not maximize surplus.
• C) is efficient, but does not maximize surplus.
• D) is not efficient and maximizes surplus.

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Definitions:

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in one of its determinants, such as its price.

Marginal Cost

Marginal cost is the increase in total production cost that arises from producing one additional unit of a product or service.

Subsidy

A financial contribution granted by the government or a public body to help an industry or business keep the price of a commodity or service low.

Marginal Costs

The increase in cost resulting from the manufacture of one additional unit of a good or service.