Figure 9.9 shows the demand and supply of a product in a competitive market.

-Refer to Figure 9.9 to answer the question.Suppose that this graph represents an industry with big external benefits and that the government wishes to increase its output by 10 units and lower its price.Which of the following will produce this result?
A)Imposing an excise tax of $2.
B)Imposing an excise tax of $1.
C)Granting a subsidy of $2 to producers.
D)Granting a subsidy of $1 to producers.
E)Granting a subsidy of $2 to consumers.

Question

Figure 9.9 shows the demand and supply of a product in a competitive market.
 
-Refer to Figure 9.9 to answer the question.Suppose that this graph represents an industry with big external benefits and that the government wishes to increase its output by 10 units and lower its price.Which of the following will produce this result?
A)Imposing an excise tax of $2. 
B)Imposing an excise tax of $1. 
C)Granting a subsidy of $2 to producers. 
D)Granting a subsidy of $1 to producers. 
E)Granting a subsidy of $2 to consumers.

Quizplus · Accepted Answer

Granting a subsidy of $2 to producers would increase the output and lower the price in an industry with big external benefits, aligning the social benefit with the private benefit.

Figure 99 Shows the Demand and Supply of a Product in in a Competitive