When does a subsidy that benefits consumers result in a more efficient allocation of a resource?
A) when the good being produced or consumed is not scarce
B) when the good being produced or consumed generates a negative externality
C) when the good being produced or consumed generates a positive externality
D) when the equilibrium price of the good is one that consumers don't like

Question

Quizplus · Accepted Answer

When a good generates a positive externality, such as education or healthcare, society benefits from an educated and healthy population. However, the market may not supply these goods in sufficient quantity because individuals may not fully consider the positive externalities when making their consumption decisions. By providing a subsidy to consumers, it reduces the cost of consumption and encourages consumers to consume more of the good, resulting in a more efficient allocation of resources as the positive externality is internalized.

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