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( Negative Externalities ) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates it. When the amount

(Negative Externalities)Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates it. When the amount of the externality produced per unit of output increases as output increases, the correct tax can be determined by using a demand-supply diagram; show this. Assume that the marginal private cost curve slopes upward.

image text in transcribed
MSC MPC = S a - - - D = MB - - -- * O

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