APFIVE Correcting A Negative Externality
A factory’s emissions create a negative externality that results in a deadweight loss due to overproduction. Which government policy is most appropriate to reduce this deadweight loss?
A
Offer a per unit subsidy to the factory.
B
Impose a per unit tax equal to the external cost.
C
Encourage the factory to increase production to achieve economies of scale.
D
Implement a price ceiling on the factory’s product.
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