The social cost of producing a good includes both the private costs of the producers as well as the costs of the externality. Taxes enacted to deal with the effects of negative externalities are called corrective taxes or, sometimes, Pigovian taxes. a) True.
Sometimes they are called Pigovian taxes, named after Arthur Pigou, an early advocate of their use. According to the Coase theorem, even if private parties can bargain over the allocation of resources at no cost, the private market cannot solve the problem of externalities and allocate resources efficiently. a) True.
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