To encourage consumption of a good that generates a positive externality, the BEST option for policymakers is to:

Question

Quizplus · Accepted Answer

Providing a subsidy to firms for each unit of the good consumed is the best option because it will lower the cost for consumers and incentivize them to consume more of the good that generates positive externality. This will lead to an increase in social welfare as the positive benefits of consuming the good spill over to the society. Penalizing firms through higher taxes or mandating consumption can be counterproductive as it can lead to market inefficiencies and consumer discontent. Allowing the market to reach equilibrium on its own may not lead to the socially optimal level of production and consumption, especially when positive externalities are involved.

To Encourage Consumption of a Good That Generates a Positive