When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do
A)It provides incentives for private decision makers to solve the externality problem on their own.
B)It typically uses command-and-control techniques.
C)It follows a rule that the use of taxes is strictly forbidden.
D)It follows a rule that subsidies are always the best policy.

Question

Quizplus · Accepted Answer

When the government chooses an externality policy that aligns private incentives with social efficiency, it provides incentives for private decision makers to solve the externality problem on their own. This can be done through policies such as Pigouvian taxes or cap and trade systems, which make it more expensive for individuals or firms to engage in activities that create negative externalities, or provide subsidies or tax breaks to those who engage in activities that create positive externalities. This aligns incentives with social efficiency, as individuals are incentivized to engage in activities that have positive spillover effects on society, while also reducing activities that have negative spillover effects.

When the Government Chooses an Externality Policy That Aligns Private