Chapter 8 - being produced that has pollution as a...

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Do you agree with the following statements? Why or why not? A. "The benefits of corrective taxes as a way to reduce pollution have to be weighed against the deadweight losses that these taxes cause." B. "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."   A. I disagree with 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," because it is false. In fact, corrective taxes reduce the inefficiency of pollution by reducing the quantity of the good
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Unformatted text preview: being produced that has pollution as a by-product. So, corrective taxes reduce deadweight loss; they do not increase it. B. I agree with 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....
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