When government intervenes in the production process because external benefits exist, it typically attempts
A)to impose a tax on each unit produced.
B)to shift the industry's demand curve to the left.
C)to shift the industry's demand curve to the right.
D)to shift the industry's supply curve to the left.

Question

Quizplus · Accepted Answer

When government intervenes to address external benefits, it typically attempts to shift the industry's demand curve to the right through policies such as subsidies or public funding for the production of the good or service. This is because external benefits result in a higher social value of the good or service than what is reflected in the private market, and shifting the demand curve to the right can increase the level of production to closer to the socially optimal level. A tax would be appropriate if there were external costs associated with production, and shifting the demand curve to the left would be counterproductive in addressing external benefits. Shifting the supply curve to the left would not address the underlying market failure.

When Government Intervenes in the Production Process Because External Benefits