If a Positive Externality Is to Be Taken Full Advantage

question 160

Multiple Choice

If a positive externality is to be taken full advantage of, the:

• A) consumer of the good should receive a subsidy equal to the marginal cost imposed on third parties that results from production (or consumption) of the good.
• B) producers' marginal costs should be increased by an amount equal to the marginal benefit to third parties that results from production of the good.
• C) consumer of the good should pay a tax equal to the marginal benefit to third parties that results from production (or consumption) of the good.
• D) producers' marginal costs should be decreased by an amount equal to the marginal cost imposed on third parties that results from production of the good.

---

Definitions:

GDP

Gross Domestic Product, the total value of all final goods and services produced within a country in a given period of time.

Tax Cuts

A reduction in the amount of taxes imposed by a government on individuals or businesses.

Monetary Policy

The process by which a central bank, currency board, or monetary authority controls the supply of money, or trading in foreign exchange markets.

Fiscal Policy

Government policy regarding taxation and spending to influence the economy.