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These externalities include the following: Driving helps contribute to global warming. All types of driving increases the congestion for other drivers around. There also might be crash into another car or pedestrian.
A second policy approach to spillover costs is for government to levy taxes or charges specifically on the related good. In figure 1 below it describes the tax equal T per unit increases the firm’s marginal cost, shifting the supply curve from S to St. The equilibrium price rises, and the equilibrium output declines from Qe to the economically efficient level Q0. The tax eliminates the initial over allocation of resources...
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