A study finds that the noise from airplanes is harmful; hence, the government imposes a $20 tax on the sale of every airplane. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $200.

Decrease

$200

$190

$180

Explanation:

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A study finds that the noise from airplanes is harmful; hence, the government imposes a $20 tax on the sale of every airplane. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $200.

The quantity of airplane tickets sold will

The socially optimal price of airplane tickets is

The private market price is

A firm selling airplane tickets receives after it pays the tax

The noise from the airplanes constitute negative externality.

Tax levied on negative externality is known as pigouvian tax.

As a result of the tax, the price of tickets increases and this would reduce the quantity of tickets demanded for according to the law of demand. According to the law of demand, the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.

The social optimal price is the price of the ticket after the tax accounting for the externality has been added to price. The social optimal price is $200.

The private market price is the price before the taxes: $190.

The amount received by firms = $200 - $20 = $180

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