Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?
a. The equilibrium quantity is greater than the socially optimal quantity.
b. The equilibrium quantity is less than the socially optimal quantity.
c. They are equal.
d. There is not enough information to answer the question.
c
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