If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:
A)impose a tax on production of the good in order to increase production.
B)impose a tax on production of the good in order to decrease production.
C)offer a subsidy for production of the good in order to increase production.
D)offer a subsidy for production of the good in order to decrease production.

Question

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:
A)​impose a tax on production of the good in order to increase production.
B)​impose a tax on production of the good in order to decrease production.
C)​offer a subsidy for production of the good in order to increase production.
D)​offer a subsidy for production of the good in order to decrease production.

Quizplus · Accepted Answer

Imposing a tax on production of the good will increase the cost of production, thereby decreasing its supply in the market. This will force producers to consider the external costs associated with production and reduce its quantity. As a result, the externality will be internalized, and the market will be more efficient.

If the Production of a Particular Good Involves Significant External