-The figure above shows the market for a good with an external benefit. If the government wants to grant a subsidy so that the efficient quantity is produced, the subsidy must equal ________ per unit.
A) $50
B) $100
C) $250
D) $300
E) $150

Question

-The figure above shows the market for a good with an external benefit. If the government wants to grant a subsidy so that the efficient quantity is produced, the subsidy must equal ________ per unit.
A) $50 
B) $100 
C) $250 
D) $300 
E) $150

Quizplus · Accepted Answer

The subsidy needed to achieve the efficient quantity in a market with an external benefit is equal to the vertical distance between the social value curve and the private value curve at the efficient quantity. This distance represents the external benefit not accounted for in the private market. If the social value curve is $150 higher than the private value curve at the efficient quantity, then a subsidy of $150 per unit would internalize the externality, aligning the private cost with the social value and leading to the production of the efficient quantity.

-The Figure Above Shows the Market for a Good with an External