Author Question: What is the largest problem associated with using a tax to correct for an externality? Explain. ... (Read 19 times)

cagreen833

  • Hero Member
  • *****
  • Posts: 544
What is the largest problem associated with using a tax to correct for an externality? Explain.
 
  What will be an ideal response?

Question 2

Refer to Figure 19-4. The equilibrium exchange rate is originally at A, 3/pound. Suppose the British government pegs its currency at 4/pound.
 
  Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2. If the government abandons the peg, the equilibrium exchange rate would be
  A) 4/pound. B) 3/pound.
  C) 2/pound. D) less than 2/pound.



apple

  • Sr. Member
  • ****
  • Posts: 352
Answer to Question 1

The biggest problem with using a tax to correct for an externality is that damages must be estimated in financial terms. This is quite difficult to do. If the tax is incorrect, the outcome will not be efficient. In fact, the tax could lead to an even greater amount of inefficiency.

Answer to Question 2

C



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Children with strabismus (crossed eyes) can be treated. They are not able to outgrow this condition on their own, but with help, it can be more easily corrected at a younger age. It is important for infants to have eye examinations as early as possible in their development and then another at age 2 years.

Did you know?

No drugs are available to relieve parathyroid disease. Parathyroid disease is caused by a parathyroid tumor, and it needs to be removed by surgery.

Did you know?

The familiar sounds of your heart are made by the heart's valves as they open and close.

Did you know?

All adults should have their cholesterol levels checked once every 5 years. During 2009–2010, 69.4% of Americans age 20 and older reported having their cholesterol checked within the last five years.

Did you know?

In ancient Rome, many of the richer people in the population had lead-induced gout. The reason for this is unclear. Lead poisoning has also been linked to madness.

For a complete list of videos, visit our video library