Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Only 3 questions. The consumption of alcohol creates a negative extemality because of car accidents caused by drunks. This clearly has a negative effect on

Only 3 questions.

image text in transcribed
The consumption of alcohol creates a negative extemality because of car accidents caused by drunks. This clearly has a negative effect on the victims of the drunk driver and on society in general through hospital and emergency service costs. a) Could placing a tax on alcohol be a socially optimal response to this action? Using an appropriate diagram, show how a (per-unit) tax might help to 'internalise' the externality. (4 marks) b) Would the Coase theorem provide a good solution to the externality in this situation? Why or why not? Explain. (2 marks) c) Ambrose is a responsible drinker. He likes an occasional glass of wine but never drives if he has had any alcohol to drink. He claims that using a tax to prevent drink-driving is both unfair and inefcient. Show that taxing all alcohol cannot eliminate all dead weight loss if there are both irresponsible people who drink and drive and responsible people like Ambrose. (4 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles A Business Perspective Financial Accounting Chapter 1-8

Authors: James Edwards, Roger Hermanson, Bill Buxton

1st Edition

1461088186, 978-1461088189

More Books

Students also viewed these Economics questions

Question

Context, i.e. the context of the information presented and received

Answered: 1 week ago