Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:
a. have internalized all costs and benefits.
b. be inefficient.
c. be destroyed.
d. not have failed.
e. be subject to obligatory controls.
Question 2
Voluntary recycling is available in many parts of the country. If citizens of these areas have collected recyclable material at home, they can bring it to a recycling center. These materials reduce landfill space, reduce the need for virgin material extraction, and provide an inexpensive input in many production processes. The information in this question suggests what about areas without voluntary recycling?
a. Externalities exist.
b. There is mandatory recycling.
c. Raw materials are less expensive.
d. The cost of production is higher.
e. Nothing.
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