Summary: Corrective Taxes

There are many situations that some firms or businesses make something that effect to the third parties but they don’t realize what they do because they want to save the cost as much as possible they can and gain higher benefits. So, there are external costs in the social that resident have to pay, which that called marginal external cost (MEC). For example, the sugar factory produces the sugar products for selling to consumers. They have their own cost of production, which is called marginal private cost (MPC) and the consumers will receive benefits from these products, which is called marginal social benefits (MSB). Although the factory make a lot of pollution to the environment and make the people in this area become sickness and have to

It makes the market become not efficiently because the marginal benefit is lower than the marginal cost (MB < MC), the efficient point is the point that the marginal social benefits are equal to the marginal social costs. If the external cost is happened, the government will come to solve the situation because they are endowed with certain right of compulsion that private institutions don't have such as they has the right to force you to pay taxes. There are two things that the government can internalize to externalities. The first one is “Corrective Taxes” and the last one is “Corrective Subsidies”.
On the one hand, a corrective tax is designed to adjust the MPC of a good or service in such a way as to internalize the externalities and

So, it will make the market efficient because the firm have to realize whatever they do badly to the market. Moreover, corrective tax can adjust the efficient market come to the social optimal point because the tax is instead of the marginal external cost, which is a negative externality, which make the market inefficient. Personally, I emphasize to the public sector more than the private sector because I think that the private sector have some reason that make the individual firm bias with themselves. So, the public sector is more appropriate in internalizing negative externalities than the private sector. Although the problem of using tax to internalize externalities is hard to know the real number of the marginal external cost in the market, it can estimate the approximately amount of that negative externality closely to the real number. Finally, the suitable reason that make me think that tax is the best way to internalize negative externalities is that corrective tax can internalize the negative externality from the market failure by not only producers but also consumers who not realize the external cost that they make to the market and affect to the third parties. Because of the real happened cost is higher than the