Give an example where a government subsidy can correct an externality. Explain how the subsidy would lead to a more efficient outcome
What will be an ideal response?
Student responses will vary. The example should be of a positive externality. The subsidy lowers marginal cost leading to an increased supply and a lower price.
You might also like to view...
An increase in the wages of truck drivers might be explained by which of the following factors?
A. A reduction in the price of rail transportation B. A reduction in the demand for transportation C. An increase in the price of gasoline D. An increase in competition within the trucking industry
Refer to the information provided in Figure 4.1 below to answer the question(s) that follow.
Figure 4.1Refer to Figure 4.1. At the price of ________ cents per apple, the United States imports 6 million apples per day.
A. 20 B. 30 C. 40 D. 60
When insurance companies offer fair insurance,
A) risk-averse agents always purchase it. B) risk-neutral agents never purchase it. C) risk-loving agents always purchase it. D) nobody would purchase fair insurance.
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
A) It is elastic at high prices and inelastic at low prices. B) It is inelastic at high prices and elastic at low prices. C) It is perfectly elastic at very high prices and perfectly inelastic at very low prices. D) It is unit elastic throughout the demand curve.