Which of the following is a disadvantage of using Pigouvian taxes to correct externality problems? A....
Which of the following is a disadvantage of using Pigouvian taxes to correct externality problems?
A. The government needs to know the size of the external cost in order to determine the size of the tax.
B. The burden of a Pigouvian tax is determines by relative elasticities, not by the government
C. Pigouvian taxes are effective only on goods and services with inelastic demand
D. The government may not spend the tax revenue wisely
Homework Answers
Correct Option A: The government needs to know the size of the external cost in order to determine the size of the tax.
It is because in order to implement correct pigouvian tax, government must know the size of externality cost. This is hard to measure and a disadvantage of pigouvian tax.
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Which of the following is a disadvantage of using Pigouvian
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