To encourage consumption of a good that generates positive externalities, the best option for policymakers would be to:
A) impose a tax on the amount consumed to achieve the socially optimal level.
B) mandate consumption of the good at the socially optimal level.
C) provide a subsidy per unit of the good consumed to achieve the socially optimal level.
D) do nothing, since the market will achieve the socially optimal level without government intervention.

Question

Quizplus · Accepted Answer

Providing a subsidy per unit of the good consumed lowers the effective price for consumers, encouraging more consumption and helping to reach the socially optimal level where the positive externalities are fully realized.

To Encourage Consumption of a Good That Generates Positive Externalities