If the marginal private benefit from consuming a good is $5 and the marginal social benefit from the consuming the good is $7, then the marginal external benefit from consuming the good is _____, and the government must _____ the consumption of the good to ensure that the socially optimal amount of the good is purchased.

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Quizplus · Accepted Answer

The marginal external benefit is the difference between the marginal social benefit and the marginal private benefit, which is $7 - $5 = $2. To ensure the socially optimal amount of the good is purchased, the government should subsidize the consumption of the good to internalize the external benefit.

If the Marginal Private Benefit from Consuming a Good Is