ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase price and consumption of the good to provide firms with extra revenue
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Make the information avaliable more asymmetric
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Decrease demand for the good and thus increase the consumer surplus
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Decrease consumption of the good and thus reduce the triangle of welfare loss
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Detailed explanation-1: -Correcting Negative Externalities Government can play a role in reducing negative externalities by taxing goods when their production generates spillover costs. This taxation effectively increases the cost of producing such goods.
Detailed explanation-2: -Taxes on negative externalities are intended to make consumers/producers pay the full social cost of the good. This reduces consumption and creates a more socially efficient outcome.
Detailed explanation-3: -A Pigovian tax is intended to tax the producer of goods or services that create adverse side effects for society. Economists argue that the costs of these negative externalities, such as environmental pollution, are borne by society rather than the producer.
Detailed explanation-4: -Government intervention: Taxation, regulation, and stronger environmental policies are three ways the government policymakers can discourage negative externalities and prevent market failure.