In a market where a positive externality is present,the effect of a government subsidy would be to ensure:
A) a more fair distribution of surplus.
B) an efficient outcome.
C) that those who enjoy the benefit receive the surplus.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

A positive externality causes the market to produce less than the socially optimal level of output. A government subsidy can increase the quantity supplied and consumed, moving the market closer to the socially optimal level of output. This will result in an efficient outcome. The subsidy will not necessarily ensure a more fair distribution of surplus or that those who enjoy the benefit receive the surplus.

In a Market Where a Positive Externality Is Present,the Effect