If the government's provision of a subsidy is too small to counteract the entire effect of a positive externality,the:
A) quantity consumed will still be too low.
B) quantity consumed will still be too high.
C) total surplus will be maximized, but the outcome will be inefficient.
D) total surplus will not be maximized, but the outcome will be efficient.

Question

Quizplus · Accepted Answer

If the subsidy provided by the government is not sufficient to fully counteract the positive externality, the quantity consumed will still be too low as the price will remain higher than the socially optimal level. Therefore, the answer is A) quantity consumed will still be too low.

If the Government's Provision of a Subsidy Is Too Small