In the case of externalities,government can use taxes and subsidies to turn an inefficient outcome into an efficient outcome.

Question

Quizplus · Accepted Answer

Government can use taxes to discourage activities that result in negative externalities and subsidies to encourage activities that result in positive externalities. By doing so, the government can bring about an efficient outcome where the marginal social cost and marginal social benefit are equal.

In the Case of Externalities,government Can Use Taxes and Subsidies