Consider a market for a good whose consumption creates a negative externality, resulting in a market equilibrium quantity that is higher than the socially optimal quantity. To address this, the government imposes a per-unit tax on consumers equal to the marginal external cost. Which statement accurately analyzes the graphical impact of this corrective tax?

Graphical Analysis of a Pigouvian Tax

In a market with a negative consumption externality, a corrective tax equal to the marginal external cost is imposed on consumers. This policy is represented graphically by an upward shift of the supply curve, which forces the market to produce at the socially optimal quantity and eliminates the deadweight loss.

Analyzing a Corrective Tax on Gasoline

The following graph illustrates the market for a product that generates a negative externality from its consumption. The curves represent Marginal Social Cost (MSC), Marginal Private Benefit (MPB), and Marginal Social Benefit (MSB). The market is initially at equilibrium at quantity Qm. The socially optimal equilibrium is at quantity Qopt. To correct this externality, the government imposes a per-unit tax on consumers. Based on the graph, what is the size of the tax required to reach the socially optimal quantity, and what is the total price consumers will pay per unit (including the tax)?

Evaluating a Corrective Tax Policy

The following graph illustrates a market where a per-unit tax has been imposed on consumers to correct for a negative externality, moving the market to the socially optimal quantity (Qopt). Match each economic concept with its corresponding representation on the graph.

In a market with a negative consumption externality, a corrective per-unit tax is imposed on consumers, moving the equilibrium to the socially optimal quantity. At this optimal quantity, the vertical gap between the marginal private benefit curve and the marginal social cost curve represents the full amount of the ______.

A government imposes a corrective tax on consumers of a product that generates a negative externality. Arrange the following graphical and economic effects in the logical sequence they occur.

In a market for a product, each unit consumed creates a negative external cost of $5 for society. To address this, the government imposes a $3 per-unit tax on the consumers of this product. What is the most likely outcome of this policy?