Suppose that planting trees creates a positive externality equal to $25 per tree.Further suppose that the local government offers a $25 per-tree subsidy to planters.What is the relationship between the equilibrium quantity and the socially optimal quantity of trees planted?
A) The equilibrium quantity is less than the socially optimal quantity.
B) The equilibrium quantity is greater than the socially optimal quantity.
C) They are equal.
D) There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

The $25 per-tree subsidy internalizes the positive externality, aligning the private benefit with the social benefit, thus making the equilibrium quantity equal to the socially optimal quantity.

Suppose That Planting Trees Creates a Positive Externality Equal to $25