Click on the link above to learn how
to do this problem.
Refer to the supply and
demand graph below. Quantity A is the equilibrium
quantity.
Quantity B represents the optimal
(allocatively efficient) level of output.
This supply and demand graph
represents that there is (are) ___________.
If the government decides to
correct this externality with a subsidy to producers,
then what happens to the graph, to the equilibrium level
of output, and to allocative efficiency?
What else could the government do
to correct for this externality?
|
