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Question

Which of the following should be considered for ‘Pigovian taxation’?

(1) Consumption of cigarettes

(2) Research for new technologies

(3) Burning of fossil fuels

(4) Restoration of lost cultural heritage

Choose the correct answer using the codes given below:

A 1 and 3 only Correct Answer Incorrect Answer
B 2, 3 and 4 only Correct Answer Incorrect Answer
C 1, 2 and 3 Correct Answer Incorrect Answer
D 2 and 4 only Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

A Pigovian tax is applied to a market activity that is generating negative externalities (costs for somebody else) like cigarette consumption, burning of fossil fuel.

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