In general, a corrective subsidy:

Question

Quizplus · Accepted Answer

A corrective subsidy can lead to a socially optimal outcome by incentivizing producers to increase production and reduce prices, leading to an increase in consumption and a reduction in market failure. This is particularly effective when there are positive externalities, as it can encourage the production of goods and services that have a positive impact on society but are underproduced in the absence of the subsidy. In contrast, a corrective tax is more appropriate when there are negative externalities, as it can discourage activities that have negative effects on society.

In General, a Corrective Subsidy