Question

his amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $200.A study finds that the noise from airplanes is harmful; hence, the government imposes a $25 tax on the sale of every airplane. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $200.a. Because of the tax, the number of airplane tickets sold will decrease . b. The socially optimal price of airplane tickets is $ c. The private market price is $ d. A firm selling airplane tickets receives $ after it pays the tax.

Answer 1

Answer:

A. Decrease

B. $200

C. $190

D. $175

Explanation:

The noise from airplanes constitute a negative externality and hence tax was levied on airplane tickets. This is known as pigouvian tax.

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

If a tax is levied on a good or service, it makes the good or service more expensive and quantity demanded would fall as a result. So the demand for airplane tickets is expected to fall as a result of the impostion of tax.

The social optimal price of the ticket is the priceof the ticket after the impostion of tax. This is $200

The private market price is the price before the impostion of tax. This is $190

How much the firm receives after paying for tax = social optimal price - tax

$200 - $25 = $175

I hope my answer helps you