A Pigouvian tax is a negative externality correcting commodity tax set equal to what?

Question

A Pigouvian tax is a negative externality correcting commodity tax set equal to what?

a.     Dead weight loss

b.     Tax revenue 

c.     Marginal external damage

d.     Marginal external benefit

Answer 1

With a negative Ecternality SMB=P=PMC<SMC

SMC =PMC +Marginal Damage. The Price is too low. we Need P+T to equal MC + external Damage. C is correct answer.