APFIVE Correcting A Negative Externality
A factory’s production creates a negative externality, resulting in overproduction and a deadweight loss. Which of the following government policies is most appropriate to correct this market failure?
A
Implement a price ceiling on the factory’s product.
B
Encourage the factory to increase production to achieve economies of scale.
C
Impose a per unit tax equal to the external cost.
D
Offer a per unit subsidy to the factory.
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