A Negative Externality Exists and Government Wants to Impose a Tax

question 23

Multiple Choice

A negative externality exists and government wants to impose a tax in order to bring about an efficient outcome.To accomplish its objective,government must set the tax equal to marginal

• A) private cost.
• B) social benefit.
• C) external cost.
• D) social cost.
• E) external benefit.

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Definitions:

GDP Deflator

An economic measure that converts output measured at current prices into constant-dollar terms, helping to distinguish between real growth and inflation.

Inflation

The tempo at which the cost of general goods and services escalates, undermining the ability to purchase as time progresses.

Expenditures Approach

A method of computing a country's gross domestic product (GDP) by adding up total consumption, investment, government spending, and net exports.

GDP

Gross Domestic Product, a measure of the economic output of a country within a specified period of time.