If the production of a good generates external benefits, the government could increase efficiency by
A) taxing the production of the good to reduce the amount produced.
B) subsidizing production of the good to increase the amount produced.
C) regulating production of the good to reduce the amount produced.
D) requiring all producers of the product to be licensed to produce the product.

Question

Quizplus · Accepted Answer

When a good generates external benefits (positive externalities), the social value of the good is higher than the private value. This means that the good is underproduced in the free market. Subsidizing production can help align the social and private costs, increasing production to a more socially optimal level.

If the Production of a Good Generates External Benefits, the Government