Betsy loves to garden,and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community,the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity.

Question

Quizplus · Accepted Answer

When a positive externality exists, such as the enjoyment Betsy's neighbors get from her rose garden, the market tends to produce less of the good than is socially optimal because it doesn't account for the external benefits to others. A subsidy can help increase the quantity produced to the socially optimal level by lowering the cost for the producer.

Betsy Loves to Garden,and Her Rose Garden Is Enjoyed by Everyone