When the government uses a private subsidy in a market with an external benefit,to reach the efficient quantity of production,the subsidy must be equal to the marginal
A) social benefit.
B) cost of production.
C) private benefit.
D) external benefit.
E) external cost.

Question

Quizplus · Accepted Answer

The subsidy must be equal to the marginal external benefit to correct for the market failure and reach the efficient quantity of production. This aligns the private cost with the social cost, encouraging the optimal level of production and consumption.

When the Government Uses a Private Subsidy in a Market