Asked by dorian hawthorne on Jun 30, 2024
Verified
If the production of a good generates external benefits, the government could increase efficiency by
A) taxing the production of the good to reduce the amount produced.
B) subsidizing production of the good to increase the amount produced.
C) regulating production of the good to reduce the amount produced.
D) requiring all producers of the product to be licensed to produce the product.
External Benefits
Positive effects of a production or consumption activity on individuals or society who are not directly involved in the transaction.
Subsidizing Production
Financial assistance provided by the government or other institutions to reduce the cost of producing goods or services and encourage increased output.
- Understand the function of governmental interference in amending market deficiencies caused by external factors.
- Comprehend the variances between positive and negative externalities and their consequences on the well-being of society.
- Recognize situations where solutions derived from the market can incorporate external costs and reestablish economic efficiency.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
B
Explanation :
When a good generates external benefits (positive externalities), the social value of the good is higher than the private value. This means that the good is underproduced in the free market. Subsidizing production can help align the social and private costs, increasing production to a more socially optimal level.
Learning Objectives
- Understand the function of governmental interference in amending market deficiencies caused by external factors.
- Comprehend the variances between positive and negative externalities and their consequences on the well-being of society.
- Recognize situations where solutions derived from the market can incorporate external costs and reestablish economic efficiency.