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

question 8

Multiple Choice

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about the socially optimal output. Under what condition will the solution (of 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 socially optimal output than the pre-subsidy output is from the socially optimal output.
• C)Under the condition that the post-subsidy output is farther away from the socially optimal output than the pre-subsidy output is from the socially optimal 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:

Net Income

Profit remaining after all expenses, taxes, and deductions have been subtracted from total revenue.

Accounts Receivable

Accounts receivable are the amounts owed to a company by its customers for goods or services delivered but not yet paid for.

Net Sales

Revenue from sales transactions after deducting returns, allowances for damaged or missing goods, and discounts.

Working Capital Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets, indicating liquidity.