A Positive Externality Exists and Government Wants to Apply a Per-Unit

question 5

Multiple Choice

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy) be worse than the problem (the market failure) ?

• A) Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality).
• B) Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output.
• C) Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output.
• D) Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality).
• E) none of the above

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Definitions:

Glorious Revolution

The bloodless coup in England in 1688 that resulted in the overthrow of King James II and the ascension of William III and Mary II to the throne, significantly expanding the powers of Parliament.

England's Political System

A constitutional monarchy and parliamentary democracy, where the monarch is the head of state and the Prime Minister is the head of government.

Dutch School

Refers to a group or style of artists and their works originating in the Netherlands during the 16th and 17th centuries, known for detailed realism.

Painting

The practice of applying pigment, color, or other medium to a surface with various tools, such as brushes, knives, or sponges, to create artistic expressions.