In order to increase society's total welfare, a production process that produces a negative externality should be
A)taxed
B)provided by the government
C)ignored
D)subsidized
E)exported

Question

Quizplus · Accepted Answer

When a production process creates a negative externality, such as pollution, it imposes costs on society that are not reflected in the market price. By taxing the production, the cost to society can be internalized and the producer will be incentivized to reduce their pollution levels, leading to an overall increase in welfare. Providing the production process by the government or ignoring it will not solve the problem and may even make it worse. Subsidizing the production process will only encourage more of the negative externality to occur, leading to a decrease in welfare. Exporting the production process does not address the negative externality and only shifts the costs to another society.

In Order to Increase Society's Total Welfare, a Production Process