To Correct a Positive Externality Problem, the Government Can Impose

question 162

Multiple Choice

To correct a positive externality problem, the government can impose

• A)a subsidy to decrease the marginal private benefits.
• B)a subsidy to increase the marginal private benefits.
• C)a tax to increase the marginal social benefits.
• D)a tax to decrease the marginal social benefits.
• E)either a tax or a subsidy to change the marginal social benefits.

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Definitions:

Allocative Efficiency

A state of the economy in which the distribution of resources among different uses is optimal, reflecting consumer preferences and maximizing total societal welfare.

Productive Efficiency

A situation in which a goods or services are produced at the lowest possible cost, utilizing all available resources efficiently.

Monopoly Power

The ability of a single supplier to control the market price and supply of a product or service.

Brand Loyalty

A consumer's preference to buy a particular brand’s product over others, often reflected in repeated purchases.