Suppose that the external cost associated with chewing gum (sticky sidewalks) is 0.5 cents per packet chewed. Most economists would suggest: Question options: Subsidizing chewing gum since it is good for the teeth. Banning chewing gum, like Singapore, in order to keep the sidewalks clean. Doing nothing. Ignore small external costs because the cost of administering a chewing gum tax is likely large relative to the harm prevented. Introducing a tax of 0.5 cents per packet of gum to ensure that all external costs are internalized.

Doing nothing. Ignore small external costs because the cost of administering a chewing gum tax is likely large relative to the harm prevented.

Explanation:

In this case, chewing gum, while having an external cost, or externality, the value of such externality is so low (not even a cent), that adding a tax to the gum in order to account for it would most likely result in higher administrative cost than any revenue or benefit that could be collected from the tax itself.

For that reason, most economists would recommend against the tax, or in other words, would recommend doing nothing.

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