Governments can most effectively encourage a firm to produce the efficient level of output of a good whose production causes a beneficial externality by

Question

Quizplus · Accepted Answer

By subsidizing the production of the good, the government can decrease the firm's costs of production, which will encourage the firm to produce more of the good. This is an effective way to incentivize the firm to produce the efficient level of output since the positive externality is not reflected in the market price of the good. The other options, such as increasing demand, taxing production, or imposing a price ceiling, may not necessarily result in producing the efficient level of output and could potentially create market inefficiencies.

Governments Can Most Effectively Encourage a Firm to Produce the Efficient