If the production of a product or service involves external benefits, then the government can improve efficiency in the market by
A)providing a subsidy to correct for an overallocation of resources.
B)providing a subsidy to correct for an underallocation of resources.
C)imposing a corrective tax to correct for an overallocation of resources.
D)imposing a corrective tax to correct for an underallocation of resources.

Question

Quizplus · Accepted Answer

When a product or service has external benefits (positive externalities), it means that its production or consumption benefits third parties who are not directly involved in the transaction. This often leads to underproduction or underallocation of resources towards that product or service because the market does not account for these external benefits. By providing a subsidy, the government can lower the cost of production or increase the benefit to consumers, encouraging more production or consumption and thus correcting the underallocation of resources.

If the Production of a Product or Service Involves External