Question

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then
a. the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain barrels.
b. the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels.
c. the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.
d. market incentives will be distorted and move the allocation of resources away from the social optimum.

Answer 1

Answer:

C

Explanation:

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels.