Question

Consider the case of a good with external benefits. If you plant trees in front of your house, the neighborhood is more attractive, and trees create shade, provide oxygen, and a home for birds and squirrels. Thus, the benefits to society are greater than the benefits to you. If the planting of trees is a private choice, you will plant too few trees relative to the socially optimal quantity, because the private value to you is less than the social value.
1. Which of the following would not help to correct this problem?
a. Subsidize consumer purchases of trees to plant.
b. Tax homeowners who plant trees.
c. Subsidize nurseries that sell trees for planting.
d. Have the government provide trees to homeowners.
e. All of the above would help to correct the problem.

2. If the government pays for a program to increase the planting of trees, who will win and lose from the program?

Answer 1

Answer:

1. b. Tax homeowners who plant trees.

2. Win - society and consumer

   Loose - tax payers and producers.

Explanation:

1. a). If the good creates a positive externalities, then the $\text{private benefits from the good are less than the social benefits}$ from the good.

In the context, the following would not help to correct the problem :

Taxing the homeowners who plant the trees.

If the government taxes or takes some money form the people or the house owners who plant trees in their neighborhood will discourage the people to plant the trees and would not help in correcting the problem.

2. If the government pays for the program that helps to increase the planting the trees, then,

the one who will win from this program is : society and the consumers

the one who will loose : tax payers and the producers as the government would impose more tax in order to fuel the project.