To Encourage Consumption of a Good That Generates Positive Externalities

question 152

Multiple Choice

To encourage consumption of a good that generates positive externalities, the best option for policymakers would be to:

• A) impose a tax on the amount consumed to achieve the socially optimal level.
• B) mandate consumption of the good at the socially optimal level.
• C) provide a subsidy per unit of the good consumed to achieve the socially optimal level.
• D) do nothing, since the market will achieve the socially optimal level without government intervention.

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Definitions:

Underwriter

An entity or person that evaluates and assumes the risk of another entity's offerings, like securities in an IPO, insurance policies, or loans.

Financial Responsibility

Financial responsibility involves managing money in a way that allows an individual or organization to meet their obligations and prepare for future financial needs.

Ex Rights

Period when stock is selling without a recently declared right, normally beginning two business days before the holder-of-record date.

Stock Rights

Options granted to existing shareholders to purchase additional shares in the company at a predetermined price, usually within a short period.