Question

A tax may be used as a corrective device in the case of a negative externality because it will __________ marginal private costs and __________ supply.

Answer 1

Answer:

b. increase; increase

Explanation:

As if there is taxes so it increased the marginal private cost and reduce the supply. If the tax is imposed so it rise the production cost i.e. the raw material prices are more that ultimately increased the final cost

So here the marginal private cost would be increased

In the case when there is a rise in the cost so the producer would have lower money so that he or she is able to decreased the suppply on the other hand the demand of the consumer would be decreased due to rise in prices.

So, the supply would also be increased

Hence, the correct option is b.