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Consider an example of destructive output externality (air pollution): A paper mill dumps pollutants into the river which influences a fishery Positioned downstream.
The tax is billed akin to marginal exterior Price tag i.e. per device of the adverse externality (say, per unit of pollution caused by a factory). This for each unit tax, generally known as Pigouvian tax increases the marginal private cost of the get together that triggers the externality, leading to the MPC curve to shift upwards by the quantity of tax.
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