Exhibit 17-6

-In Exhibit 17-6,a subsidy of $3 per unit will lead to the socially optimal level of production.

Question

Exhibit 17-6

-In Exhibit 17-6,a subsidy of $3 per unit will lead to the socially optimal level of production.

Quizplus · Accepted Answer

In general, a subsidy can lead to an increase in production and a reduction in market price, which may or may not lead to the socially optimal level of production. However, without additional information about the specific market and its externalities, it is impossible to determine the exact effect of the subsidy in Exhibit 17-6. Therefore, we must assume that the subsidy would lead to the socially optimal level of production.

Exhibit 17-6 -In Exhibit 17-6,a Subsidy of $3 Per Unit Will Lead