10 If there is a positive externality a tax on the good can lead the market to produce the efficient quantity a subsidy on the good can lead the market to produce the efficient quantity too much will be produced by the market than taxes cannot reduce the amount of output produced by the market

10 If there is a positive externality a tax on the good can lead the market to produce the efficient quantity a subsidy on the good can lead the market to produce the efficient quantity too much will be produced by the market than taxes cannot reduce the amount of output produced by the market

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

10 If there is a positive externality
a tax on the good can lead the market to produce the efficient quantity
a subsidy on the good can lead the market to produce the efficient quantity
too much will be produced by the market
than taxes cannot reduce the amount of output produced by the market

Expert Solution

Step 1

An externality is a benefit/cost associated with an activity recevied or incurred by a third person who is not involved in that activity.

An externality is of two types, i.e., positive externality and negative externality.

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