If an activity generates a positive externality, the government can increase total economic surplus by ________ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ________ the activity.
A)taxing; banning
B)subsidizing; banning
C)subsidizing; taxing
D)publicizing; taxing

Question

Quizplus · Accepted Answer

Subsidies are used to increase provision of activities with positive externalities and taxes are used to decrease provision of activities that generate negative externalities.

If an Activity Generates a Positive Externality, the Government Can