If there are both external benefits and external costs associated with the production and consumption of a good, and the external benefits are greater than the external costs,
A)Taxing it could bring us closer to the efficient solution
B)Subsidizing it could bring us closer to the efficient solution
C)Neither a tax or a subsidy could bring us closer to the efficient solution
D)None of the above is true.

Question

If there are both external benefits and external costs associated with the production and consumption of a good, and the external benefits are greater than the external costs,
A)​Taxing it could bring us closer to the efficient solution
B)​Subsidizing it could bring us closer to the efficient solution
C)​Neither a tax or a subsidy could bring us closer to the efficient solution
D)​None of the above is true.

Quizplus · Accepted Answer

When external benefits exceed external costs, subsidizing the good can internalize the externality, encouraging production and consumption closer to the socially optimal level. This aligns with economic theory on correcting for positive externalities to achieve efficiency.

If There Are Both External Benefits and External Costs Associated