Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It will reduce deadweight loss and enhance allocative efficiency by encouraging the production of a positive externality.
B
It will create a market distortion that could lead to inefficiencies and increase deadweight loss.
C
It will have no impact on market efficiency since subsidies do not affect consumer behavior.
D
It will only benefit the manufacturers without influencing overall market dynamics.
Understanding the Answer
Let's break down why this is correct
Answer
When a local government provides a subsidy for electric vehicles, it lowers the cost for consumers, making these vehicles more affordable. This can lead to an increase in the number of electric vehicles on the road, which helps reduce pollution and greenhouse gas emissions, creating positive externalities. Positive externalities are benefits that affect people who are not directly involved in the transaction, like cleaner air for everyone. By encouraging the use of electric vehicles, the subsidy can improve market efficiency by aligning private costs with social benefits, meaning that more people will choose electric vehicles instead of traditional cars. For example, if a family buys an electric car due to the subsidy, they not only save money but also contribute to a healthier environment for their community.
Detailed Explanation
The subsidy helps more people buy electric cars. Other options are incorrect because Some might think subsidies always cause problems; It's a common belief that subsidies don't change how people act.
Key Concepts
Market Efficiency
Government Intervention
Externalities
Topic
Government and Market Efficiency
Difficulty
medium level question
Cognitive Level
understand
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