If the government's provision of a subsidy is too small to counteract the entire effect of a positive externality, what result can we expect?
A)The quantity consumed will still be too low.
B)The quantity consumed will still be too high.
C)Total surplus will be maximized, but the outcome will be inefficient.
D)Total surplus will not be maximized, but the outcome will be efficient.

Question

Quizplus · Accepted Answer

When a subsidy is too small to counteract the entire effect of a positive externality, the quantity consumed will still be lower than the socially optimal level, because the external benefits are not fully internalized.

If the Government's Provision of a Subsidy Is Too Small