To internalize a positive externality an appropriate public policy response would be to ?
Correct answer: C. subsidize the good
- A. ban the good creating the externality
- B. tax the good
- C. subsidize the good
- D. have the government produce the good until the value of an additional unit is zero
Explanation
A subsidy lowers the private cost or raises the private benefit of an activity with external benefits, moving market output toward the socially efficient level. Taxing or banning the good would reduce an activity that society wants more of.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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