-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. The government can achieve the optimal outcome by
A) setting the price at P₃.
B)providing a per-unit subsidy to consumers equal to P₃ - P₁.
C)providing a per-unit subsidy to consumers equal to P₂ - P₁.
D)establishing a tax equal to P₂ - P₁ per unit of the good sold.

Question

-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. The government can achieve the optimal outcome by
A) setting the price at P₃. 
B)providing a per-unit subsidy to consumers equal to P₃ - P₁. 
C)providing a per-unit subsidy to consumers equal to P₂ - P₁. 
D)establishing a tax equal to P₂ - P₁ per unit of the good sold.

Quizplus · Accepted Answer

The optimal outcome is achieved when the quantity demanded equals the quantity supplied at the optimal price. Providing a per-unit subsidy to consumers equal to P₃ - P₁ will shift the demand curve to the right, increasing the quantity demanded to Q₂ and achieving the optimal outcome.

-Refer to the Above Figure