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Generate QuizA tax imposed by the government to correct a negative externality, such as pollution from a factory, is called a ___ tax.
- Pigouvian
- health and education
- notice
- interest
Answer: Pigouvian
Named after economist Arthur Pigou, a Pigouvian tax is levied on any market activity that generates negative externalities (costs borne by third parties). The tax aims to internalize the externality, aligning the private cost of production with the true social cost.