When the government chooses a policy that aligns private incentives with social efficiency to solve an externality problem,it
A)provides incentives to private decisionmakers to induce them to solve the externality problem on their own.
B)typically uses command-and-control techniques.
C)uses taxes more often than subsidies.
D)uses subsidies more often than taxes.

Question

Quizplus · Accepted Answer

When the government chooses a policy that aligns private incentives with social efficiency, it provides incentives to private decision-makers to induce them to solve the externality problem on their own. This is known as a market-based solution, as opposed to command-and-control techniques where the government imposes regulations on private decision-makers. Taxes and subsidies can both be used to align incentives, but they are not always the most effective approach.

When the Government Chooses a Policy That Aligns Private Incentives