What tool can a government use to correct a market with a negative externality, thereby setting the efficient level of output and maximizing surplus?
A)Tariff
B)Subsidy
C)Tradable allowance
D)Quota

Question

Quizplus · Accepted Answer

Tradable allowances are a tool governments can use to correct markets with negative externalities. By setting a cap on the total level of pollution and allowing companies to buy and sell allowances, it incentivizes companies to reduce emissions in a cost-effective manner, moving the market towards a more efficient level of output and maximizing surplus.

What Tool Can a Government Use to Correct a Market