Real-World Examples of Pigouvian Taxes

📚 Quick Study Guide

• 🏭 Pigouvian taxes are designed to correct negative externalities, like pollution.
• 💰 The tax is set equal to the marginal external cost of the activity.
• 🚗 Examples include carbon taxes, taxes on pollutants, and congestion charges.
• ⚖️ The goal is to internalize the external cost, making producers and consumers bear the full cost of their actions.
• 📈 Ideally, this leads to a socially optimal level of production or consumption.

Practice Quiz

1. Which of the following is the BEST example of a Pigouvian tax?
   1. A tax on income.
   2. A tax on carbon emissions from factories.
   3. A sales tax on clothing.
   4. A property tax on homes.
2. The primary goal of a Pigouvian tax is to:
   1. Raise revenue for the government.
   2. Correct negative externalities.
   3. Subsidize specific industries.
   4. Encourage economic growth.
3. A congestion charge in a city center is an example of a Pigouvian tax because it aims to:
   1. Reduce traffic and pollution.
   2. Increase revenue for road maintenance.
   3. Promote public transportation.
   4. All of the above.
4. If a factory's pollution creates a \$10 marginal external cost per unit produced, the Pigouvian tax should be:
   1. \$5 per unit.
   2. \$10 per unit.
   3. \$0 per unit.
   4. It depends on the factory's profit margin.
5. What is the likely effect of a Pigouvian tax on polluting activities?
   1. Increase in polluting activities.
   2. No change in polluting activities.
   3. Decrease in polluting activities.
   4. It depends on government regulations.
6. Which sector commonly uses Pigouvian taxes to address environmental concerns?
   1. Technology
   2. Agriculture
   3. Manufacturing
   4. Healthcare
7. A tax on single-use plastic bags aims to reduce:
   1. Government spending
   2. Plastic waste and pollution
   3. The cost of groceries
   4. Imports of plastic materials