Which of the following is not a suitable method of government intervention in a market where production or consumption of the product results in positive externalities?

Question

BlackTom AI · Accepted Answer

Positive externalities mean the social benefit (marginal social benefit, MSB) exceeds the private benefit (marginal private benefit, MPB). As a result, a free market produces/consumes less than the socially optimal quantity. Government interventions therefore aim to raise demand or lower producers’ costs so private incentives move closer to the social optimum.

Step-by-step reasoning:
1. Relevant concepts: private vs. social benefits, under‑consumption because MSB > MPB, and Pigouvian policies. For positive externalities the corrective policy is a subsidy or other encouragement to increase output/consumption; for negative externalities the corrective policy is a tax to reduce output/consumption.
2. How each option affects the market:
   - Advertising to promote consumption (a): increases consumers’ willingness to pay or awareness, shifting demand right (MPB closer to MSB), raising equilibrium quantity toward the social optimum.
   - Subsidy for consumers (b): lowers the effective price consumers pay, raising demand and quantity consumed; a Pigouvian subsidy equal to the external benefit would achieve the socially optimal quantity.
   - Subsidy for producers (d): lowers producers’ costs, shifting supply right (increasing quantity and lowering price), which also raises consumption/production toward the social optimum when positive externalities exist.
   - Tax on producers (c): raises producers’ costs and shifts supply left (reduces quantity). That moves the market further away from the socially optimal higher quantity and is therefore counterproductive for positive externalities.
3. No numerical calculation is required; the logic follows from the direction of shifts in supply/demand curves.
4. Why the correct answer is correct: A tax reduces output and is used to internalize external costs for negative externalities; applying a tax in the presence of positive externalities worsens the under‑provision problem.
5. Why other options are incorrect here: advertising and subsidies (to consumers or producers) all serve to increase consumption/production and help correct under‑provision caused by positive externalities.

Therefore, the intervention that is not suitable is c. a tax on producers of the product. This matches the provided answer.

Which of the following is not a suitable method of government intervention in a market where production or consumption of the product results in positive externalities?单项选择题

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