Question

Positive externalities can be corrected by which of the following? (Check all that apply.)

A. Government subsidies paid to producers who create positive externalities.

B. Government taxes imposed on producers who create positive externalities.

C. Normal market adjustments.

D. Charity.

Answer 1

A. Government subsidies paid to producers who create positive externalities.

and

D. Charity.

The positive externality is from the production and the producer produces at private benefit but if the producers get the subsidies equal the external benefit then the efficient quantity at social benefit equal to private cost can be produced.

The charity is normally done by the private individual to reduce taxable income and that is encouraging a private solution to a positive-externality problem.