Which of the following statements describes the best way to internalize a positive externality?
A) A producer could move its operation to a less populated area.
B) Consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good.
C) The consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good.
D) A producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good.

Question

Quizplus · Accepted Answer

Providing a subsidy to the consumers of a good equal to the external benefit resulting from the production or consumption of the good is the best way to internalize a positive externality. This incentivizes consumers to consume more because they receive a benefit, and the subsidy can be financed by the government.

Which of the Following Statements Describes the Best Way to Internalize