Which of the following statements is true?
A)A tax applied to an activity that generates a negative externality always brings about the socially optimal level of output.
B)A subsidy applied to an activity that generates a positive externality always brings about the socially optimal level of output.
C)a and b
D)none of the above

Question

Quizplus · Accepted Answer

Both statements A and B are overly simplistic and do not always hold true. The effectiveness of taxes and subsidies in achieving socially optimal levels of output depends on various factors, including the size of the tax or subsidy, the elasticity of supply and demand, and other market conditions.

Which of the Following Statements Is True