Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Market equilibrium
B
Public goods
C
Private costs
D
Social welfare
Understanding the Answer
Let's break down why this is correct
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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