Use the table below to answer the following questions.
Table 15.2.1
-Refer to Table 15.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.If the government decides to correct the externality problem,it could
A)subsidize production by $20 per unit.
B)subsidize production by $10 per unit.
C)provide the good itself.
D)tax production by $10 per unit.
E)tax production by $20 per unit.

Question

Use the table below to answer the following questions.
Table 15.2.1 
-Refer to Table 15.2.1.Given in the table are the marginal private cost and the marginal social cost of the production of chemical fertilizer and the marginal social benefit from the consumption of fertilizer.If the government decides to correct the externality problem,it could
A)subsidize production by $20 per unit. 
B)subsidize production by $10 per unit. 
C)provide the good itself. 
D)tax production by $10 per unit. 
E)tax production by $20 per unit.

Quizplus · Accepted Answer

The externality problem arises because the marginal social cost is higher than the marginal private cost. To correct this, the government should impose a tax equal to the difference, which is $20 per unit, to align private costs with social costs.

Use the Table Below to Answer the Following Questions