To ensure the market reaches the social optimum in presence of a technology spillover,how should the government subsidize producers
A)by use of a corrective tax
B)by an amount equal to the value of the technology spillover
C)by helping those companies that are adversely affected by the new technology
D)by transferring income to the low-income portion of the population

Question

Quizplus · Accepted Answer

By providing a subsidy equal to the value of the technology spillover, the government can incentivize producers to invest in the new technology and maximize its benefits. This would help ensure that the market reaches the social optimum by capturing the positive externalities of the technology spillover. A corrective tax (option A) would be more appropriate for addressing negative externalities, and options C and D do not directly address the issue of technology spillovers.

To Ensure the Market Reaches the Social Optimum in Presence