Author Question: How do taxes work to reduce a negative externality? Explain in detail. What will be an ideal ... (Read 86 times)

lunatika · **on:** Jun 29, 2018

How do taxes work to reduce a negative externality? Explain in detail.

What will be an ideal response?

Question 2

Find an example of the distinction between microeconomics and macroeconomics in today's headlines.

What will be an ideal response?

dajones82 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If a per-unit tax exactly equal to marginal damage costs is imposed on a firm, the firm will weigh the tax, and thus the damage costs, in its decisions. At the new equilibrium price consumers will be paying an amount sufficient to cover full resource costs as well as the cost of damage imposed. The efficient level of output for the firm will also fall as well.

Answer to Question 2

Microeconomics: On May 6, 2014 a headline in The New York Times was Bayer Buys Merck's Consumer Business for 14.2 Billion. This story covers a microeconomic topic because it discusses how two pharmaceutical firms have decided to transfer ownership of the unit producing over-the-counter consumer products for Merck. Macroeconomics: On May 6, 2014, a headline in The Wall Street Journal was U.S. Trade Gap Narrows as Demand Grows Here and Abroad. This story covers a macroeconomic topic because it concerns the total amount of international trade in the entire economy.