Question

Products with positive externalities are under-consumed, thus creating a market failure. How can the government correct this failure? (Check all that apply)

I. By taxing the output of the product to increase tax revenue.
II. By paying subsidies to the producers to lower the cost of the product to potential buyers.
III. By reducing the marginal social benefit of the product, thus eliminating the externality.
IV. By requiring producers to manufacture more of the product.
V. By producing it themselves and distributing it free or at very low cost to consumers.

Answer 1

Ans) the correct options are

iI) By paying subsidies to the producers to lower the cost of the product to potential buyers.

V) By producing it themselves and distributing it free or at very low cost to consumers.