To ensure the market reaches the social optimum in presence of a technology spillover, the government should subsidise producers by:
A)means of a Pigovian tax
B)an amount equal to the value of the technology spillover
C)helping those companies that are adversely affected by the new technology
D)transferring income to the low-income portion of the population

Question

Quizplus · Accepted Answer

Subsidising producers by an amount equal to the value of the technology spillover would incentivise them to invest in the new technology, leading to an increase in production and economic growth while also benefitting society through the spillover effect. A Pigovian tax would aim to correct a negative externality and would not directly address the spillover effect. Helping companies that are adversely affected and transferring income to the low-income portion of the population would not necessarily ensure a socially optimal outcome in the presence of a technology spillover.

To Ensure the Market Reaches the Social Optimum in Presence