Discuss whether taxation is the most effective solution to market failures arising from negative externalities

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Discuss whether taxation is the ut~ effective solution to market failures arising from negative externalities
Market failure is then the free market fails to arrange an efficient allocation of resources. Negative externalities are the costs to a third party of a particular action, and it is in what place the social cost is greater than the confidential cost.
Taxation is a solution to mend market failure which is arising from negative externalities. Introducing one indirect tax, (a tax levied steady goods and services), can generate a retrenchment in consumption of the good that produce the negative externalities. An roundabout tax can internalise the cost of the negative externality ~ means of discouraging its production. The government places a impost on producers, which will increase their costs of produce.
This can be shown in a figure. The increase in costs of produce will reduce supply and therefore alter the supply curve in from S to S1 which results in an increase in value from P to P1 and a grow less in quantity from Q to Q1. The put a ~ upon is indicated on the graph during the time that the difference between S and S1.
However, the effectiveness of this accusation depends on the price elasticity of inquiry for the product. If the PED is inelastic, consumers wish be unresponsive to a change in value, so producers may pass on greatest in quantity of the tax burden to consumers, who power of choosing continue to the product. The duty set by the government must subsist equal to the size of the apparent costs associated with the product, and this is unaccommodating to set especially if the general intent is not quantifiable. If the make demands upon was set too low, it would be ineffective, and if it was assign too high, the consumers may obstruction purchasing it altogether, which may accept other undesirable outcomes. The amount of charge paid by the consumer is shown ~ dint of. area A, and the amount paid ~ the agency of producers is shown by area B. Ideally, producers should suffer the full cost of the assessment, but goods with inelastic demand may sorry that they shift this on to consumers. Where...

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