Which of the following government actions is appropriate in a market with an external benefit?
A) taxes
B) vouchers
C) marketable permits
D) setting a tax equal to the transactions costs
E) price ceiling

Question

Quizplus · Accepted Answer

In a market with an external benefit, the government can use vouchers as a way to incentivize individuals to consume more of the good that generates the positive externality. Vouchers can be given to individuals who consume the good, effectively reducing the cost of consumption for them. This will encourage more individuals to consume the good and increase the overall level of consumption, which in turn would increase the positive externality. Taxes are not an appropriate option since they would reduce the quantity of the good consumed. Marketable permits and setting a tax equal to the transaction costs would not solve the issue of the positive externalities. Price ceiling is not appropriate since it could lead to a shortage of the good and result in rationing.

Which of the Following Government Actions Is Appropriate in a Market