Suppose that recycling rubber for sneakers creates an external benefit of $2.00 per ton of rubber. There are no external costs. The efficient amount of rubber will be recycled when the government creates a
A) subsidy of more than $2.00 per ton of rubber.
B) subsidy of $2.00 per ton of rubber.
C) tax of more than $2.00 per ton of rubber.
D) tax of $2.00 per ton of rubber.

Question

Quizplus · Accepted Answer

The efficient amount of rubber will be recycled when the government creates a subsidy of $2.00 per ton of rubber. This is because the subsidy will internalize the external benefit of recycling rubber, making it more profitable for firms to recycle rubber.

Suppose That Recycling Rubber for Sneakers Creates an External Benefit