If the production of a product or service involves external or spillover benefits,then the government can improve efficiency in the market by:
A) providing a subsidy to correct for an overallocation of resources.
B) providing a subsidy to correct for an underallocation of resources.
C) imposing a corrective tax to correct for an overallocation of resources.
D) imposing a corrective tax to correct for an underallocation of resources.

Question

Quizplus · Accepted Answer

When there are external or spillover benefits, the market tends to underallocate resources to the production of the good or service. A subsidy can encourage more production, aligning private incentives with the social optimum.

If the Production of a Product or Service Involves External