📚 Learning Guide
Understanding Per-Unit Taxes
easy

Which of the following scenarios best illustrates the effect of a per-unit tax on a good with negative externalities?

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Choose the Best Answer

A

A factory produces 100 tons of steel and pays a tax on each ton, leading to a decrease in production due to higher costs.

B

A consumer decides to buy more of a product because it is now cheaper due to a tax reduction.

C

A company increases its output of a good after a per-unit tax is levied, believing it will increase profits.

D

A government provides subsidies to producers to encourage more production in a market.

Understanding the Answer

Let's break down why this is correct

Answer

A per-unit tax is a charge that the government places on each unit of a good sold, and it is often used to reduce negative externalities, which are harmful effects on society or the environment caused by the production or consumption of a good. For example, if a factory produces a lot of pollution while making its products, the government might impose a tax on each item the factory sells. This tax makes the goods more expensive, which can lead to fewer people buying them and encourages the factory to find cleaner ways to produce. As a result, the factory might reduce its pollution, benefiting the environment and public health. This scenario shows how a per-unit tax can help lessen the negative impact of harmful goods on society.

Detailed Explanation

When a factory pays a tax for each ton of steel it makes, it costs more to produce. Other options are incorrect because This option suggests that a tax makes things cheaper, which is not true; This option shows a misunderstanding of how taxes work.

Key Concepts

Per-unit taxes
Negative externalities
Market efficiency
Topic

Understanding Per-Unit Taxes

Difficulty

easy level question

Cognitive Level

understand

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