To internalize a negative externality an appropriate public policy response would be to ?
Correct answer: C. tax the good
- A. have the government take over the production of the good causing the externality
- B. ban the production of all goods creating negative externalities
- C. tax the good
- D. subsidize the good
Explanation
A tax raises the private cost of producing the good toward its full social cost, reducing the overproduction caused by the negative externality. A subsidy would increase production and worsen the problem.
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