Effective methods of dealing with externalities would include

Question

Quizplus · Accepted Answer

Giving a subsidy per unit equal to the difference between MSC and MPC to firms that generate beneficial externalities would encourage them to produce more of the product, creating a positive externality for society. This would create an incentive for firms to internalize the externality and produce the socially optimal level of output. Taxing or imposing fines on firms that generate beneficial externalities would discourage them from producing the product, leading to a reduction in the positive externality for society. Restricting the output of firms that generate beneficial externalities would also lead to a reduction in the positive externality for society.

Effective Methods of Dealing with Externalities Would Include