Homework Answers
Answer: b) government could increase economic efficiency by taxing the good producing of the negative externality.
During a negative produvtion externality, the social cost exceeds the private cost but it is not taken into account and goods are produced where Marginal benefit = Marginal private cost. Hence, overproduction takes place.
To avoid this, government can tax the good so that Marginal private cost = Marginal social cost.
And efficient production takes place.
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