Take a commodity, such as cigarettes or junk food, associated with negative externalities. Assume that the marginal

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Take a commodity, such as cigarettes or “junk food,” associated with negative externalities.

Assume that the marginal private cost of production and the marginal external cost per unit are both constant. Graph the actual and effi cient quantities. Show how a tax on producers (or consumers) can result in the effi cient output. Explain whether it is possible to attain effi ciency with a subsidy.

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The Economics Of Health And Health Care

ISBN: 9781138208049

8th Edition

Authors: Sherman Folland, Allen C. Goodman, Miron Stano

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