Which of the following is a plausible solution to a distortion?
A)By centralizing the privately owned enterprises
B)By shutting down any industry which is contributing to atmospheric pollution
C)By imposing a tax or subsidy on the activity if the social marginal cost or the social marginal benefit exceeds the market price
D)By imposing an importation ban on manufactured goods

Question

Quizplus · Accepted Answer

Imposing a tax or subsidy on the activity that is causing the distortion can help correct the market failure by aligning the social cost or benefit with the market price. Option A is not a plausible solution as centralizing privately owned enterprises could lead to a monopoly or oligopoly, which could result in fewer incentives to innovate or provide quality services. Option B is too extreme, as it would lead to a complete shutdown of some industries and result in job losses. Option D is not a plausible solution, as it would lead to economic inefficiencies and potentially harm trade relationships with other countries.

Which of the Following Is a Plausible Solution to a Distortion