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A Pigovian tax is a per-unit tax imposed on a good or activity that generates a negative externality, with the purpose of internalizing the external cost and achieving social efficiency. In the framework of Intermediate Microeconomics II, the calculation of a Pigovian tax begins with identifying the difference between private and social costs, as the divergence causes overproduction of the good creating the externality. Consider a market where the private marginal cost (PMC) of production does not account for the external damage, and the social marginal cost (SMC) includes it. The external cost per unit is called the marginal external cost (MEC). To internalize the externality, the government should impose a tax equal to the MEC at the socially optimal output ________ ______ ______ _________ ____ _________.
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