Question

12. When the government levies a tax on a good equal to the external cost associated with the good’s production, it ___________ the price paid by consumers and makes the market outcome ___________ efficient.

Answer 1

Answer:

increases, more

Explanation:

If taxes by government are based on the external cost of producing the goods, there will be a tendency of sellers to push this price increase to the buyers. This will result in price increase for the consumer.

Since the producer is not bearing the added cost, they will be motivated to produce more to meet market demand for products at a cost that is profitable for them. This will result in more efficient market outcome.