When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?
A)Impose a tax greater than the value of the technology spillover.
B)Not allow production of any product that causes a technology spillover.
C)Provide a subsidy equal to the value of the technology spillover.
D)Require producers to "clean up" any spillover that results from their production process.

Question

Quizplus · Accepted Answer

If an industry is characterized by technology spillover, it means that the benefits of the technology used by one firm are enjoyed by other firms in the industry as well. In this case, the market equilibrium will be lower than the socially optimal equilibrium because the social benefits of the technology spillover are not being fully considered in the market. To ensure that the market equilibrium equals the socially optimal equilibrium, the government should provide a subsidy equal to the value of the technology spillover. This will incentivize firms to produce more, leading to a higher market equilibrium, while also accounting for the social benefits of the technology spillover. Imposing a tax greater than the value of the technology spillover or not allowing production of any product that causes a technology spillover would discourage production and decrease the market equilibrium, while requiring producers to "clean up" any spillover that results from their production process may not fully account for the social benefits of the technology spillover.

When an Industry Is Characterized by Technology Spillover, What Should