A private subsidy has what effect on the amount of a good or service produced? Is a private subsidy an appropriate policy to offset the inefficiency from an external cost or an external benefit?

What will be an ideal response?


A private subsidy increases the production of the good or service that is subsidized. A good or service with an external benefit is underproduced by a competitive, unregulated market. Because it increases the production, a private subsidy is the appropriate policy to overcome the inefficiency that is the result of an external benefit.

Economics

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