Chap10 - Chapter10 Externalities 10 a. EXTERNALITIES...

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Externalities Problems and Applications 2. a. The statement, "The benefits of corrective taxes as a way to reduce pollution have to be  weighed against the deadweight losses that these taxes cause," is false. In fact,  corrective taxes reduce the inefficiency of pollution by reducing the quantity of the good  being produced that has pollution as a by-product. So, corrective taxes reduce  deadweight loss; they do not increase it. b. The statement, "When deciding whether to levy a corrective tax on consumers or  producers, the government should be careful to levy the tax on the side of the market  generating the externality," is inaccurate. It does not matter on whom the tax is  imposed the incidence of the tax will be identical. So whether the externality is caused  by the seller or the buyer of a good, a tax on either producers or consumers will lead to  the same reduction of quantity and change in the prices producers receive or consumers  pay. EXTERNALITIES
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This note was uploaded on 10/13/2010 for the course ECON 200 taught by Professor Levendis during the Fall '07 term at Loyola New Orleans.

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Chap10 - Chapter10 Externalities 10 a. EXTERNALITIES...

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