The Strongest Case for Government with Respect to a Negative

Multiple Choice

The strongest case for government with respect to a negative externality is that government needs to set the

A) subsidy equal to the marginal private benefits.
B) tax equal to the marginal external costs plus $1.
C) tax slightly below the marginal external costs.
D) tax equal to the marginal external costs.
E) subsidy equal to the marginal social benefits.