In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by
A) setting the price at P1.
B) establishing a tax of P3 - P1 per unit of the good sold.
C) establishing a tax of P3 - P2 per unit of the good sold.
D) setting the price at P4.
B
You might also like to view...
The government raises revenue through taxation to pay for the services it provides
a. True b. False Indicate whether the statement is true or false
An investment pays $1,500 half of the time and $500 half of the time. Its expected value and variance respectively are:
A. $2,000; (250,000 dollars)2 B. $1,000; 250,000 dollars C. $1,000; 250,000 dollars2 D. $1,000; 500,000 dollars
Which of the following statements is true?
A) As output increases, average fixed cost becomes smaller and smaller. B) Average fixed cost does not change as output increases. C) The marginal cost curve intersects the average fixed cost curve at its minimum point. D) When marginal cost is greater than average fixed cost, average fixed cost increases.
The quantity of DVD players purchased declined in spite of a decline in price. This implies that the
A. supply curve for DVD players shifted to the left. B. demand curve for DVD players shifted to the right. C. demand curve for DVD players shifted to the left. D. supply curve for DVD players shifted to the right.