If the production of a product or service involves external 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

External benefits lead to underallocation of resources because the market fails to account for the positive externalities. A subsidy can encourage more production or consumption, aligning private incentives with social benefits.

If the Production of a Product or Service Involves External