Subsidies are provided to goods for which the private level of output is more than the socially optimal level of output.

Question

Quizplus · Accepted Answer

Subsidies are provided to goods for which the private level of output is less than the socially optimal level of output. This is because the private market fails to take into account the positive externalities generated by the production and consumption of such goods. The subsidy is provided to encourage the production and consumption of such goods up to the socially optimal level.

Subsidies Are Provided to Goods for Which the Private Level