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#THE IMPOSITION OF A TAX ON A GOOD ENABLES THE GOVERNMENT TO FULL#
It means that consumers will end up paying the full social marginal cost. A tax should be placed on the good equal to the external marginal cost.Diagram – Taxes on Negative Externalities If a good has a negative externality, without a tax, there will be over-consumption (Q1 where D=S) because people ignore the external costs. This reduces consumption and creates a more socially efficient outcome. Taxes on negative externalities are intended to make consumers/producers pay the full social cost of the good.