Suppose That Candy Producers Create a Positive Externality Equal to $1

question 110

Multiple Choice

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

• A)The equilibrium quantity is greater than the socially optimal quantity.
• B)The equilibrium quantity is less than the socially optimal quantity.
• C)They are equal.
• D)There is not enough information to answer the question.

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