-In the above figure, in order to promote an efficient allocation of resources, the government could grant a subsidy equal to
A) zero.
B) $10 per unit.
C) $5 per unit.
D) $15 per unit.

Question

-In the above figure, in order to promote an efficient allocation of resources, the government could grant a subsidy equal to
A) zero. 
B) $10 per unit. 
C) $5 per unit. 
D) $15 per unit.

Quizplus · Accepted Answer

A subsidy of $10 per unit would bridge the gap between the private cost and the social cost, aligning the private market outcome with the socially optimal level of production. This would correct the market failure and promote an efficient allocation of resources by internalizing the external cost.

-In the Above Figure, in Order to Promote an Efficient