Suppose a Tax Equal to the Value of the Marginal

question 98

Multiple Choice

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except

• A) an increase in the equilibrium market price.
• B) a decrease in the equilibrium quantity produced and consumed.
• C) a decrease in market supply of the good.
• D) an increase in the demand for the good.

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Definitions:

Current Cost Accounting

An accounting approach that records assets and liabilities at their current market value rather than their historical cost.

Realized Gains

Profits made from the sale of assets that exceed the purchase price, distinguishing from unrealized gains on assets still held.

LIFO Inventory

Last-In, First-Out, an inventory valuation method that assumes the last items added to inventory are the first sold, affecting the reported income and inventory value.

FIFO Inventory

FIFO Inventory, or First-In, First-Out, is an inventory valuation method where the goods first purchased or produced are the first to be sold.