If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality,the:
A) quantity consumed will become even lower.
B) quantity consumed will become too high.
C) total surplus will be maximized.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

If the subsidy is too large, it can lead to overconsumption, causing the quantity consumed to exceed the socially optimal level.

If the Government's Provision of a Subsidy Is Too Large