If the government wishes to correct the existence of positive externality, it could
A)grant subsidies to consumers to stimulate demand.
B)impose a tax on the producers to stimulate supply.
C)impose taxes on consumers to stimulate demand.
D)grant subsidies to producers to reduce supply.

Question

Quizplus · Accepted Answer

Granting subsidies to consumers would stimulate demand for the product, which would in turn increase the positive externality associated with its consumption. This would encourage more people to consume the good or service, leading to a greater social benefit. Imposing a tax on producers would decrease supply and end up making the product less available, thereby reducing the positive externality. Imposing taxes on consumers would discourage demand and make the product less affordable, which would also reduce the positive externality. Granting subsidies to producers would encourage them to increase production, leading to an increase in the positive externality, but this would not be the most efficient way to correct the existence of positive externality.

If the Government Wishes to Correct the Existence of Positive