Consider a market in which there is an external benefit. A private subsidy paid to producers can be used to arrive at the efficient market equilibrium because the subsidy will
A) decrease demand.
B) decrease the supply of the good.
C) increase the price demanders pay.
D) increase the quantity produced.

Question

Quizplus · Accepted Answer

A private subsidy paid to producers for a good with an external benefit encourages production, thereby increasing the quantity produced. This aligns the market outcome closer to the socially optimal level of production by internalizing the external benefit.

Consider a Market in Which There Is an External Benefit