When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality:
A)it provides incentives to private decision makers to induce them to solve the externality problem on their own
B)it typically uses command-and-control techniques
C)the use of taxes is strictly forbidden
D)subsidies are always the best policy

Question

Quizplus · Accepted Answer

When the government chooses an externality policy that aligns private incentives with social efficiency, it provides incentives to private decision makers to induce them to solve the externality problem on their own. This is done through market-based instruments such as taxes, subsidies, and tradable permits, rather than command-and-control techniques. Subsidies are not always the best policy, as it depends on the specific externality being addressed.

When the Government Chooses an Externality Policy That Aligns Private