In order to increase society's total welfarer, a production process that produces a negative externality should be
A) taxed
B) provided by the government
C) ignored
D) subsidized
E) exported

Question

Quizplus · Accepted Answer

When a production process generates negative externality, it imposes a cost on society that is not reflected in the market price of the product. Therefore, the quantity of the product produced and consumed may be more than the socially optimal level, leading to a net welfare loss to society. By imposing a tax on the product, the cost of the negative externality can be internalized and factored into the market price. This leads to a reduction in the quantity of the product produced and consumed, closer to the socially optimal level, resulting in a higher total welfare for society.

In Order to Increase Society's Total Welfarer, a Production Process