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suppose that the u.s. government determines that cigarette smoking creates social cost not reflected in the current market price an equilibrium quantity of cigarettes. a study has recommended that the government can correct forthe externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. it also recommentds raising the funds to make these payments by increasing taxes on cigarettes. assuming that the government is correct that cigarette smoking creates external costs, evaluate whether the study's recommended policies might help correct this negative externality.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941291

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