In a market experiencing positive externalities, what economic mechanism can the government use to encourage socially optimal output instead of the actual output, which may be lower due to underallocation of resources?

In a market with positive externalities, like education or vaccination, the actual output is often lower than what is socially optimal because people do not fully consider the benefits to society. To encourage more production and consumption, the government can use subsidies. A subsidy is a financial support given to producers or consumers, which lowers their costs and encourages them to produce or buy more. For example, if the government provides a subsidy for solar panels, more people might install them because they are cheaper, leading to increased clean energy use that benefits everyone. This way, the government helps to align private incentives with social benefits, increasing overall welfare.