To internalize a positive externality:
A)the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good.
B)a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good.
C)consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good.
D)None of the above are correct.

Question

To internalize a positive externality:
A)​the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good.
B)​a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good.
C)​consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good.
D)​None of the above are correct.

Quizplus · Accepted Answer

Providing a subsidy to consumers of a good, equal to the external benefit resulting from the production or consumption of the good, will internalize the positive externality. This will increase the demand for the good and induce the market to produce a socially optimal quantity.

To Internalize a Positive Externality