Refer to the figure below. The socially optimal quantity in this market could be achieved by imposing a ________ equal to the vertical distance ________.
A)tax; LN
B)subsidy; LN
C)tax; LM
D)subsidy; LM

Question

Refer to the figure below. The socially optimal quantity in this market could be achieved by imposing a ________ equal to the vertical distance ________. 
A)tax; LN 
B)subsidy; LN 
C)tax; LM 
D)subsidy; LM

Quizplus · Accepted Answer

A subsidy equal to the vertical distance between social demand and private demand will generate the socially optimal equilibrium price and quantity.

Refer to the Figure Below