Question

Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities.

Answer 1

Answer: Government should tax goods with positive externalities and subsidize goods with negative externalities

Explanation: Negative externalities occurs when a third party suffers an extra cost in the purchase of goods and services. When Government subsidize goods with negative externalities, they become more affordable for the third party. Viz a Viz for the positive externalities.

Taxing the positive externalities will create a balance and regulate price of goods and services