A Pigouvian tax is a tax levied on a market activity that has a significant External Cost.
Alex Tabarrok (reference below) illustrates how the imposition of a Pigouvian Tax, equal to the external cost, makes the Private Cost plus tax equal to the Social Cost, and thus moves the price and quantity to the Efficient Equilibrium.
Atlas topic, subject, and course
Alex Tabarrok, minute 12:00 of An Introduction to Externalities (12-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-definition-pigovian-tax, accessed 6 May 2016.
Page created by: Ian Clark, last modified 6 May 2016.