In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.

Question

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A negative externality (e.g. pollution) causes an overproduction of the good or service, leading to a higher quantity than the socially optimal level. The government can use a tax to increase the cost of production or consumption of the good, causing firms and individuals to reduce the quantity consumed or produced, thus leading to a more efficient outcome.
On the other hand, a positive externality (e.g. education) causes an underproduction of the good or service, leading to a lower quantity than the socially optimal level. The government can use a subsidy to incentivize the production or consumption of the good, leading to an increase in quantity, thus leading to a more efficient outcome.

In the Case of a Negative Externality,the Government Can Use