The effect of a government subsidy in a market where a positive externality is present is:
A) to increase surplus.
B) to increase efficiency.
C) to make consumers internalize the external benefit.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

A government subsidy in a market with a positive externality can increase surplus by increasing the quantity consumed and produced, and can also make consumers internalize some of the external benefit by reducing the cost of consumption to them. Additionally, the subsidy can increase efficiency by encouraging the production of the optimal quantity of the good that benefits society as a whole. Therefore, all three statements are true.

The Effect of a Government Subsidy in a Market Where