📚 Learning Guide
Subsidies for Positive Externalities
easy

Arrange the following steps in the correct order to demonstrate how subsidies for positive externalities can lead to increased market efficiency: A) Government provides a subsidy to producers, B) Supply curve shifts to the right, C) Increased production aligns with socially optimal output, D) Consumers benefit from lower prices and increased access.

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Choose the Best Answer

A

A→B→C→D

B

B→A→C→D

C

D→C→B→A

D

A→C→B→D

Understanding the Answer

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Answer

To understand how subsidies for positive externalities can improve market efficiency, we start with the government providing a subsidy to producers. This financial support encourages producers to create more goods or services that have positive effects on society, like education or renewable energy. As a result, the supply curve shifts to the right, meaning that more products are available at lower prices. With increased production, the market then aligns with what is best for society, known as the socially optimal output. Finally, consumers benefit from these lower prices and greater access to the products, leading to overall economic improvement and satisfaction.

Detailed Explanation

First, the government gives money to producers. Other options are incorrect because This option suggests that the supply curve shifts before the government gives a subsidy; This option puts the socially optimal output before the supply curve shifts.

Key Concepts

Subsidies for Positive Externalities
Market Efficiency
Supply Curve
Topic

Subsidies for Positive Externalities

Difficulty

easy level question

Cognitive Level

understand

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