Suppose That Planting Trees Creates a Positive Externality Equal to $25

question 196

Multiple Choice

Suppose that planting trees creates a positive externality equal to $25 per tree.Further suppose that the local government offers a $25 per-tree subsidy to planters.What is the relationship between the equilibrium quantity and the socially optimal quantity of trees planted?

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

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