Which of the following statements is correct?
A)Government should tax goods with either positive or negative externalities.
B)Government should tax goods with negative externalities and subsidize goods with positive externalities.
C)Government should subsidize goods with either positive or negative externalities.
D)Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question

Quizplus · Accepted Answer

Taxing goods with negative externalities (such as pollution) makes these goods more expensive, discouraging their consumption and reducing the harm caused by these externalities. Subsidizing goods with positive externalities (such as education or healthcare) makes these goods more affordable and incentivizes their consumption, thereby increasing the benefits generated by these externalities. This approach helps align the private costs and benefits of a good with its social costs and benefits, leading to a more efficient allocation of resources.

Which of the Following Statements Is Correct