If in an Attempt to Correct an Externality the Government

question 131

Multiple Choice

If in an attempt to correct an externality the government sets a Pigouvian tax too high, the equilibrium quantity will be:

• A) higher than the efficient quantity.
• B) lower than the efficient quantity.
• C) equal to the efficient quantity.
• D) zero.

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Definitions:

Economic Behavior

The actions or decisions that individuals, households, businesses, and governments make in regard to the allocation of resources.

Forgo

To give up or abstain from something. In economic terms, this often refers to the opportunity cost of choosing one option over another.

Budget

An estimate of income and expenditure for a set period, often used by governments, organizations, or individuals to plan financial operations.