A subsidy may be used as a corrective device in the case of a positive externality because it will __________ marginal private benefits and __________ demand.

Question

Quizplus · Accepted Answer

A subsidy can increase the marginal private benefits of consuming or producing a good that generates a positive externality, leading to an increase in demand for that good. This aligns private incentives with the social optimum.

A Subsidy May Be Used as a Corrective Device in the Case