Figure 10-3
-Refer to Figure 10-3. If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would
A)introduce a subsidy of $2 per unit.
B)impose a tax of $4 per unit.
C)introduce a subsidy of $4 per unit.
D)impose a tax of $2 per unit.

Question

Figure 10-3 
-Refer to Figure 10-3. If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would
A)introduce a subsidy of $2 per unit. 
B)impose a tax of $4 per unit. 
C)introduce a subsidy of $4 per unit. 
D)impose a tax of $2 per unit.

Quizplus · Accepted Answer

To achieve the socially optimal level of output, the government should introduce a subsidy equal to the external benefit, which is $4 per unit, to encourage more production and consumption of the good.

Figure 10-3 -Refer to Figure 10-3. If the Government Wanted to Tax