In the case of a technology spillover, the government can encourage firms to internalize a positive externality by
A)taxing production, which would decrease supply.
B)taxing production, which would increase supply.
C)subsidizing production, which would decrease supply.
D)subsidizing production, which would increase supply.

Question

Quizplus · Accepted Answer

By subsidizing production, the cost of production for the firms would decrease, which would incentivize them to increase their production and supply more. This would help the firms internalize the positive externality of technology spillover as they would be able to capture some of the benefits themselves.

In the Case of a Technology Spillover, the Government Can