The government of a small town is concerned about the litter created when people leave styrofoam cups used to serve large beverages on the ground. The government decides to tax these by implementing a $\$ 1$ tax on these drinks.

What is the most likely purpose of this tax?
Choose 1 answer:
(A) Reward sellers of this good
(B) Increase the demand for these drinks
(C) Encourage people to throw the cups away
(D) Raise tax revenue for a new park
(E) Reduce the number of beverages sold in styrofoam cups

Question

The government of a small town is concerned about the litter created when people leave styrofoam cups used to serve large beverages on the ground. The government decides to tax these by implementing a $\$ 1$ tax on these drinks.

What is the most likely purpose of this tax?
Choose 1 answer:
(A) Reward sellers of this good
(B) Increase the demand for these drinks
(C) Encourage people to throw the cups away
(D) Raise tax revenue for a new park
(E) Reduce the number of beverages sold in styrofoam cups

Accepted Answer

***E*** ∻Key Concept∻ ⚹Pigovian Tax⚹ ∻Explanation∻ ⚹A tax on a good with external costs to correct for market inefficiencies and reduce negative externalities, such as litter from styrofoam cups.⚹◊How would the implementation of the tax on styrofoam cups used for large beverages impact the overall market equilibrium for these drinks in the small town?⍭ Generate me a similar question◊

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