Alcohol taxes that are used by government as an incentive for distillers and beer wholesalers to cut back on their alcohol sales which create external costs are called a) Sales taxes b) Marketable permits c) Subsidies d) Pigouvian taxes

Marketing Dec 26, 2020

Alcohol taxes that are used by government as an incentive for distillers and beer wholesalers to cut back on their alcohol sales which create external costs are called

a) Sales taxes

b) Marketable permits

c) Subsidies

d) Pigouvian taxes

Expert Solution

The answer is: d) Pigouvian taxes.

Alcohol taxes that are used by government as an incentive for distillers and beer wholesalers to cut back on their alcohol sales which create external costs are called Pigouvian taxes. Pigouvian taxes are imposed to correct the negative externality, through increasing the price and reducing quantity produced. Pigouvian taxes are set equal to external damage (external cost) caused by the negative externality.

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