Economics Homework Help

In our textbook reading this week, we learn about in a market in equilibrium, quantity demanded equals quantity supplied, and there is no pressure to change price or quantity. When there is a shortage or surplus, the price or quantity will adjust until it reaches equilibrium again. Taxes can also be effective tools to adjust the equilibrium price or quantity within a market. The article below explains how Pigouvian taxes work to impact equilibrium prices and quantities.

The Pigou Club https://www.npr.org/transcripts/774494691

Read (or listen to) the article above and answer the following questions:

1. Name a good or service that you think has a high social cost, and therefore would benefit from a Pigouvian tax.

2. How would that tax be calculated? Who would pay that tax – producers? Consumers? Both?

3. How would society benefit from that tax? What would be the biggest challenge to implementing that tax?