What is the relationship between Pigovian taxes and market failure? How do Pigovian taxes internalize externalities? Suppose that we are able to identify that the external cost of driving cars is $5,000. How can we use a Pigovian tax to internalize this external cost? Use a graph to illustrate.
This is the question I have to answer. I was able to answer the first part, but I am unsure how to create the graph.