For a Government Subsidy on a Good with an External

question 56

Multiple Choice

For a government subsidy on a good with an external benefit to result in the efficient amount of output being produced, what must be done?

• A) Private production and private consumption must both be directly subsidised.
• B) The quantity demanded must be decreased to the efficient amount.
• C) The government must produce the product.
• D) Private production without the subsidy must be prohibited.
• E) The size of marginal external benefit must be accurately determined.

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Definitions:

Marginal Revenue Product

The extra income produced by utilizing an additional unit of a resource or production factor.

MRP Curve

The Marginal Revenue Product curve, representing the additional revenue generated by hiring one more unit of a resource in the factor market.

Wage Rate

The standardized payment given to employees for their labor, typically denoted as an amount per hour or per year.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a resource, factor, or input.