Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 10 - Part IV - Externalities - Quick Check Multiple Choice - Page 213: 3

Answer

a) increases, more

Work Step by Step

Taxing a good which generates an external cost causes individuals in the market to ‘internalize’ the negative externality, shifting down the demand curve. The intersection between the supply curve and new demand curve occurs at a lower quantity matching the socially efficient quantity.
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