In order to increase society's total welfare (social efficiency), a production process that produces a negative externality should be:

Question

Quizplus · Accepted Answer

A production process that produces a negative externality imposes a cost on society that is not reflected in the price of the good or service. Therefore, the optimal solution is to tax the production process in order to reflect the full social cost of the activity. This will discourage the production of the activity and encourage producers to seek alternatives that do not impose costs on society. Subsidies and ignoring the externality would only exacerbate the problem, and providing the production process by the government would result in inefficiency and potential rent-seeking behavior.

In Order to Increase Society's Total Welfare (Social Efficiency), a Production