Assume the production of a good gives rise to external benefits. The government may increase efficiency by
A) subsidizing consumption of the good.
B) requiring all producers of the good to be licensed.
C) taxing production of the good.
D) imposing taxes on the good.

Question

Quizplus · Accepted Answer

When a good produces external benefits (positive externalities), subsidizing its consumption can help internalize these benefits, making the social benefit of consumption equal to the private benefit and leading to a more efficient market outcome.

Assume the Production of a Good Gives Rise to External