Question

To correct for positive externalities, the government should

A)		do nothing, since no harm is done by positive externalities
B)		Levy a tax on the output of the good or service
C)		pay a subsidy equal to the marginal external benefit
D)		impose a price ceiling on the good to discourage its production
E)		impose a price floor on the good at which the marginal private benefit equals the marginal social cost

Answer 1

Option C

Explanation: In positive externality, the government needs to provide subsidies and in negative externalities, the government needs to impose a tax.