A corrective subsidy induces the ________ toward the socially optimal level.
A) consumers affected by a negative externality to increase the quantity consumed
B) producers creating a negative externality to increase the quantity produced
C) consumers benefiting from a positive externality to increase the quantity consumed
D) producers generating a positive externality to reduce the quantity produced

Question

Quizplus · Accepted Answer

A corrective subsidy is a payment from the government to producers or consumers in order to encourage an activity that yields a beneficial externality. When the subsidy is given to consumers, it reduces the price they pay, making them more willing to purchase the product. This would encourage consumers who benefit from the positive externality to consume more, which would lead them toward the socially optimal level.

A Corrective Subsidy Induces the ________ Toward the Socially Optimal