In the figure given below,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits.
-From Figure 20-2,we can conclude that to help the market attain the efficient level of output,the government should:
A)provide a subsidy of $8 per unit to the producer.
B)impose a tax of $4 per unit of production.
C)provide a subsidy of $3 per unit to the producer.
D)impose a tax of $3 per unit of production.

Question

In the figure given below,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits. 
-From Figure 20-2,we can conclude that to help the market attain the efficient level of output,the government should:
A)provide a subsidy of $8 per unit to the producer. 
B)impose a tax of $4 per unit of production. 
C)provide a subsidy of $3 per unit to the producer. 
D)impose a tax of $3 per unit of production.

Quizplus · Accepted Answer

The correct choice is to provide a subsidy of $3 per unit to the producer, as it would help increase the output to the efficient level by reducing the cost of production, thereby encouraging more production to meet the efficient market demand.

In the Figure Given Below,the Competitive Supply Curve of a Commodity