Figure 10-4

-Refer to Figure 10-4.Externalities in this market could be internalized if
A) there were a tax on the product.
B) there were a subsidy for the product.
C) production were stopped.
D) the Coase theorem failed.

Question

Figure 10-4
 
-Refer to Figure 10-4.Externalities in this market could be internalized if
A) there were a tax on the product. 
B) there were a subsidy for the product. 
C) production were stopped. 
D) the Coase theorem failed.

Quizplus · Accepted Answer

A tax on the product would increase the cost of production, effectively reducing the quantity produced and consumed. This would reduce the negative externalities caused by the production and consumption of the product, and provide an incentive for producers and consumers to internalize the costs. A subsidy would incentivize production, potentially exacerbating the negative externalities. Stopping production altogether would be unlikely and inefficient, and the Coase theorem could potentially be applied to negotiate a solution but it does not provide a direct policy intervention to internalize externalities.

Figure 10-4 -Refer to Figure 10-4.Externalities in This Market Could Be Internalized