Suppose the government decides to raise the gasoline tax as a way of reducing air pollution and traffic congestion to their optimal levels. which of the following describes why pigovian taxes, such as gasoline tax, are unlike most other taxes?
a) other taxes are typically used to cover general spending, but funds from corrective taxes can only be used to alleviate pollution
b) corrective taxes bring the allocation of resources closer to the social optimum, and thus improve economic efficiency
c) other taxes get passed on from businesses to consumers, whereas corrective taxes do not
d) correct taxes alter incentives, whereas other taxes typically do not.

The correct answer is option B.

Explanation:

A corrective tax is a policy used by the government to decrease negative externality. It is different from negative externality in the sense that it brings allocation of resources closer to the socially optimal level.  

The imposition of tax on a product increases the cost of production of a commodity. This increase in the cost of production will cause the production of the product to decrease. As a result, a fewer quantity of the product causing externality will be produced.  

So negative externality will be reduced and the economy will move closer towards economic efficiency.

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