If the production of a particular good involves significant external benefits, what might the government do to force the externality to be internalized?
A) Impose a tax on production of the good in order to decrease production.
B) Impose a tax on production of the good in order to increase production.
C) Offer a subsidy for production of the good in order to increase production.
D) Use a production permit for the good in order to decrease production.

Question

Quizplus · Accepted Answer

By offering a subsidy, the government can incentivize production of the good with external benefits. This makes it easier for those who generate the external benefits to capture the value that they create. As a result, the market will produce more of the good than it otherwise would, which will help to internalize the externality.

If the Production of a Particular Good Involves Significant External