Answer to Question #196213 in Macroeconomics for Nolo

Question

Briefly explain the impact of a Pigouvian tax on a producer/supplier.

Answer 1

A Pigouvian tax is an expense imposed by the government on any operation that generates socially negative externalities. An externality is a societal behavior that has a detrimental impact on others, but not necessarily on the individual who performs the activity. A Pigouvian tax is an expense imposed by the government on any operation that generates socially negative externalities. An externality is a societal behavior that has a detrimental impact on others, but not necessarily on the individual who performs the activity.Its shift the costs from society to the producers of these externalities.