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3. Should government intervene with tax or subsidy in the presence of externality? Why or why...

3. Should government intervene with tax or subsidy in the presence of externality? Why or why not?

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Answer #1

The major problem is regarding the negative externality

The govt intervention will help to correct the failure of market from negative externalities

The government do this by means of regulations

They also does this by the way of taxes and subsidies

Negative externalities also means social cost

The use of tax increase the private cost of consuption/production

Another approach is to subsidise activities that lead to positive externalities

It fairly reduces the cost of production for suppliers

A higher level of training will improve the Improves labour productivity so its good to include subsidy in that cases

HOPE THIS HELPS

PLEASE COMMENT OF YOU HAVE ANY DOUBTS

THANKS

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