In order to encourage consumption of a good that generates positive externalities, policymakers would:
A)impose a tax on the amount consumed in order to achieve the socially optimal level.
B)mandate consumption of the good at the socially optimal level.
C)provide a subsidy per unit of the good consumed in order to achieve the socially optimal level.
D)do nothing, since the market will achieve the socially optimal level without government intervention.

Question

Quizplus · Accepted Answer

Providing a subsidy per unit of the good consumed will encourage consumption of the good that generates positive externalities and move consumption towards the socially optimal level. This is a form of government intervention to correct the market failure caused by positive externalities. Options A and B involve government intervention that would decrease consumption and are not ideal in this situation. Option D assumes the market will achieve the socially optimal level without any government intervention, which is not always true in cases of positive externalities.

In Order to Encourage Consumption of a Good That Generates