When dealing with consumption externalities, government can potentially correct the market failure:
A)only in the case of positive consumption externalities
B)only in the case of negative consumption externalities
C)in both the positive and negative cases by inducing market participants to internalise the externality
D)in neither the positive or negative cases because governments can only correct production externalities

Question

Quizplus · Accepted Answer

Government can correct both positive and negative consumption externalities by inducing market participants to internalize the externality through policies such as taxes or subsidies. Thus, both options A and B are incorrect. Option D is also incorrect as governments can correct both production and consumption externalities.

When Dealing with Consumption Externalities, Government Can Potentially Correct the Market