Which of the Following Statements Describes the Best Way to Internalize

question 136

Multiple Choice

Which of the following statements describes the best way to internalize a positive externality?

• A) A producer could move its operation to a less populated area.
• B) Consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good.
• C) The consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good.
• D) A producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good.

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Definitions:

Deposits

Money placed into a financial institution for safekeeping, which can earn interest over time.

Loans

Funds borrowed that are expected to be paid back with interest.

Required Reserves

The fraction of deposits that banks are obligated to hold in reserve and not lend out, as mandated by the central bank.

Reserve Requirement

The fraction of deposits that banks are required to hold in reserve and not lend out, which is used by central banks as a tool to control the money supply.