Question

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Answer 1

Answer:

They are equal

Explanation:

Negative externality is when the benefits of economic activities to third parties is less than its costs.

A tax is levied on negative externality to reduce quantity produced to the social optimal quantity.

If the amount of tax is equal to the amount of total negative externality, then after-tax equilibrium quantity will be equal to social optimal quantity.

If the amount of tax is less than the amount is equal to the amount of total negative externality, then after-tax equilibrium quantity will be greater than the social optimal quantity.

If the amount of tax is greater than the amount is equal to the amount of total negative externality, then after-tax equilibrium quantity will be less than the social optimal quantity.

I hope my answer helps you

Answer 2

Answer:

They are equal

Explanation:

The relationship between the After-tax equilibrium quantity and the socially optimal quantity of electricity to be produced would be equal this is because the negative externality which is $5 is equal to the government imposed tax of $5 per-unit of electricity produced by the producers

since the equilibrium quantity produced by the producers already have a negative externality attached before the government imposed tax on the producers hence the socially optimal quantity would not be affected at all.

If  the tax imposed by the government is higher than the negative externality. the after-tax equilibrium quantity will be lower than the socially optimal quantity and vice versa