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) increase the quantity produced.
B) decrease the supply of the good.
C) increase the price demanders pay.
D) decrease demand.

Question

Quizplus · Accepted Answer

A private subsidy to producers will lower their costs, encouraging them to produce more, thus increasing the quantity produced and moving the market towards the efficient equilibrium where the external benefits are accounted for.

Consider a Market in Which There Is an External Benefit