Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Overproduction
B
Efficient allocation
C
Increased deadweight loss
D
Market equilibrium
Understanding the Answer
Let's break down why this is correct
Answer
Taxes on goods that are underproduced help to improve market efficiency by encouraging more production of those goods. Similarly, subsidies on goods that have negative externalities aim to correct market failure and promote the production of goods that benefit society. For example, if a factory produces clean energy but is not making enough profit, a subsidy can help it produce more, which benefits the environment and public health. By providing financial support, the government encourages the production of goods that have positive effects, balancing out the negative impacts of other activities. In this way, subsidies help to align private incentives with social benefits, promoting overall market efficiency.
Detailed Explanation
Subsidies encourage more production of goods that cause harm. Other options are incorrect because Some might think subsidies help allocate resources well; People might confuse subsidies with deadweight loss.
Key Concepts
Impact of Taxes on Market Efficiency
Effects of Subsidies on Production Outcomes
Deadweight Loss
Topic
Effects of Taxes and Subsidies
Difficulty
medium level question
Cognitive Level
understand
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