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    Question

    A "Pigouvian tax" is designed to correct

    for:
    A A regressive tax system. Correct Answer Incorrect Answer
    B A negative externality. Correct Answer Incorrect Answer
    C A positive externality. Correct Answer Incorrect Answer
    D Government revenue shortfall. Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    A Pigouvian tax is levied on an activity that generates negative externalities (e.g., pollution). It aims to internalize the external cost, aligning private cost with social cost and reducing the activity to the socially optimal level.

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