When dealing with externalities,how can the market equilibrium be moved closer to the social equilibrium
A)by taxing negative externalities and subsidizing positive externalities
B)by taxing both positive and negative externalities
C)by subsidizing both positive and negative externalities
D)by taxing users of goods that have externalities

Question

Quizplus · Accepted Answer

Taxing negative externalities and subsidizing positive externalities is the best option to move the market equilibrium closer to the social equilibrium. This is because it creates incentives for individuals and firms to internalize the external costs and benefits associated with their actions, leading to a more efficient allocation of resources that is closer to the social optimum. Taxing both positive and negative externalities or subsidizing both positive and negative externalities would be less effective because it would not differentiate between actions that have positive or negative effects on society. Taxing users of goods that have externalities may not work in all cases because it may be difficult to identify and tax all the users responsible for the externalities.

When Dealing with Externalities,how Can the Market Equilibrium Be Moved