One way to correct a negative externality is for government to subsidize firms to increase the quantities that they are willing and able to manufacture at each price.

Question

Quizplus · Accepted Answer

Subsidizing firms to increase production does not correct negative externalities as it only encourages more production and exacerbates the negative impact on the environment or society. Instead, the government should impose taxes or regulations that internalize the cost of the negative externality, making firms pay for the damages they cause.

One Way to Correct a Negative Externality Is for Government