📚 Learning Guide
Government Subsidies and Externalities
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Government subsidies are to externalities as tax incentives are to what?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

Market equilibrium

B

Public goods

C

Private costs

D

Social welfare

Understanding the Answer

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Answer

Government subsidies are financial support given by the government to encourage certain activities or industries, especially when there are positive externalities, which are benefits enjoyed by others who do not pay for them. For example, if the government gives money to a company that produces solar panels, it helps reduce pollution, benefiting everyone. Similarly, tax incentives are also used to encourage specific behaviors or activities but are directed more towards reducing negative externalities, which are harmful effects that affect others. For instance, if the government offers tax breaks to companies that reduce their carbon emissions, it discourages pollution and helps protect the environment. Thus, just as subsidies aim to promote positive externalities, tax incentives aim to minimize negative externalities.

Detailed Explanation

Tax incentives help improve social welfare by encouraging good behavior. Other options are incorrect because Some might think tax incentives balance the market; People may confuse tax incentives with funding public goods.

Key Concepts

Government Subsidies
Externalities
Tax Incentives
Topic

Government Subsidies and Externalities

Difficulty

medium level question

Cognitive Level

understand

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