How can the government internalize a positive externality
A)by taxing production, which would decrease supply
B)by taxing production, which would increase supply
C)by subsidizing production, which would decrease supply
D)by subsidizing production, which would increase supply

Question

Quizplus · Accepted Answer

Subsidizing production would increase supply of goods or services that provide positive externality, which would benefit society as a whole. By subsidizing production, the government can encourage firms to produce more of these goods or services, which would increase their availability, accessibility, and affordability to consumers. This, in turn, would help to internalize the positive externality by increasing consumption and reducing the gap between private and social benefits. For example, the government could subsidize the production of renewable energy sources, such as solar or wind power, which generate positive externalities by reducing greenhouse gas emissions and improving air quality.

How Can the Government Internalize a Positive Externality