Answer to Question #210114 in Microeconomics for Keobakile

Question

Evaluate the effectiveness of Tax as a Government Intervention Measure to combat Market Failure

Answer 1

Taxes on the negative externalities tend to promote government revenue as well as minimize environmental pollution. Therefore, when the taxes raised are lower, the performance or the market environment will be negative, such that there will be negative changes compared to the previous outcome. Hence, the decline in taxes may be an indication of reduction of operations accompanied with market failure.