APFIVE Pigouvian Tax and External Costs
How does a Pigouvian tax imposed on an activity with a negative externality affect the relationship between marginal private cost and marginal social cost?
A
It widens the gap between marginal social cost and marginal private cost
B
It aligns marginal private cost with marginal social cost by internalizing the external cost
C
It makes marginal private cost exceed marginal social cost
D
It eliminates the concept of marginal social cost entirely
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