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A policy solution to a market with a negative externality would be
A policy solution to a market with a negative externality would be...
a. to tax the production of the good.
b. to provide a subsidy to the company making the good.
c. to encourage consumers to purchase more of the good.
d. all of the above are correct.
Expert Solution
A policy solution to a market with a negative externality would be... a. to tax the production of the good.
When the market fails to allocate resources appropriately, the government will intervene to assist the market. In this example, taxing the production of the good is the best way to equalize the externality. Especially if the situation would expand to where there was more than one firm involved, a tax would be fair to all producers.
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