Question

A study finds that the noise from lawn mowers is harmful; hence, the government imposes a $20 tax on the sale of every unit. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, basic push mowers regularly sold for $190. After the tax is in place, the market price for basic push mowers rises to $208.
Because of the tax, the number of basic push mowers sold will Increase or Decrease?

The socially optimal price of basic push mowers is $???

The private market price is $???


A firm selling basic push mowers receives $??? after it pays the tax.

Answer 1

Answer:

Because of the tax, the number of basic push mowers sold will Increase or Decrease?

Decrease, The tax will reduce the number of basic push mowers sold. In this case, the quantity of basic push mowers will decrease to the socially optimal quantity because the $20 tax completely internalizes the noise externality.

The socially optimal price of basic push mowers is $?

$208, Because the $20 tax completely internalizes the externality, the socially optimal price to consumers is $208.

The private market price is $?

The private market price is the price that was prevailing before the corrective tax was put in place, which is $190 here.

A firm selling basic push mowers receives $? after it pays the tax.

Receives $188, because the consumer is paying $208 for basic push mowers and the company has to pay $20 of that price in taxes, the net price that a firm would receive for each unit sold is $208 - $20 = $188.