When an activity creates a positive externality:
A) less of the activity should be produced, and taxes or fines could reduce it to a socially desirable level.
B) more of the activity should be produced, and taxes or fines could increase it to a socially desirable level.
C) less of the activity should be produced, and subsidies or grants could reduce it to a socially desirable level.
D) more of the activity should be produced, and subsidies or grants could increase it to a socially desirable level.

Question

Quizplus · Accepted Answer

When an activity creates a positive externality, it means that it has additional benefits to society that are not captured by the market price. Therefore, to reach a socially desirable level, more of the activity should be encouraged, often through subsidies or grants, to account for these external benefits.

When an Activity Creates a Positive Externality