A Positive Externality Exists and Government Wants to Apply a Per-Unit

question 5

Multiple Choice

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

• A) Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality).
• B) Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output.
• C) Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output.
• D) Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality).
• E) none of the above

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Definitions:

Maximize Motivation

The process of enhancing the drive or willingness of individuals or teams to perform their tasks to the best of their ability.

One of the Four Drives

This refers to an element within a theory, suggesting human behavior is primarily driven by four basic needs: acquiring, bonding, learning, and defending.

Benefit

An advantage or profit gained from something.

Subgroup

A distinct group within a larger group, having some characteristics or interests in common.