📚 Learning Guide
Understanding Per-Unit Taxes
easy

Per-unit taxes are designed to address __________ by aligning the marginal private cost with the marginal social cost, thus encouraging producers to reduce output to a socially efficient level.

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Learning Path

Question & Answer
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Choose the Best Answer

A

market efficiency

B

positive externalities

C

negative externalities

D

tax evasion

Understanding the Answer

Let's break down why this is correct

Answer

Per-unit taxes are designed to address negative externalities, which occur when the production or consumption of a good causes harm to others who are not directly involved in the transaction. When producers don't consider these external costs, they tend to produce more than what is socially optimal, leading to overproduction and negative effects on society, like pollution. By imposing a tax for each unit produced, the government forces producers to factor in these external costs, aligning their private costs with the broader societal costs. For example, if a factory emits pollution while making goods, the tax on each product encourages the factory to reduce production, leading to less pollution and a healthier environment. This way, per-unit taxes help achieve a balance where production levels are more efficient for society as a whole.

Detailed Explanation

Negative externalities happen when a product's production harms others, like pollution. Other options are incorrect because Market efficiency means resources are used well; Positive externalities benefit others, like education.

Key Concepts

Per-unit taxes
Marginal social cost
Market efficiency
Topic

Understanding Per-Unit Taxes

Difficulty

easy level question

Cognitive Level

understand

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