Consider a Competitive Market in Which the MPB = 180

question 5

Multiple Choice

Consider a competitive market in which the MPB = 180 - 2q and the MSC = q.In this market, however, there is a positive consumption externality of $60 per unit consumed.What government intervention will result in the efficient outcome?

• A)The government implement a tax of $60, levied on consumers.
• B)The government provide a consumption subsidy of $60 per unit, provided to consumers.
• C)The government subsidize producer by $60 per unit.
• D)Both b and C

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