Sia
Question
Microeconomics
Posted 8 months ago
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 tax on these drinks.
What is the most likely purpose of this tax?
Choose 1 answer:
(A) Encourage people to throw the cups away
(B) Raise tax revenue for a new park
(C) Reward sellers of this good
(D) Increase the demand for these drinks
(६) Reduce the number of beverages sold in styrofoam cups
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Answer from Sia
Posted 8 months ago
Solution
a
Purpose of Tax: The primary purpose of a tax on a good that creates negative externalities, such as litter from styrofoam cups, is to reduce the consumption of that good
b
Negative Externalities: Styrofoam cups create a negative externality by contributing to litter. By taxing these cups, the government aims to internalize this externality, making consumers bear the social cost of their consumption
c
Effect on Demand: A $1 tax on styrofoam cups will increase the price of beverages served in these cups, leading to a decrease in the quantity demanded
Answer
(E) Reduce the number of beverages sold in styrofoam cups
Key Concept
Negative Externalities
Explanation
The tax is intended to reduce the consumption of beverages in styrofoam cups by making them more expensive, thereby addressing the negative externality of litter.
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