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21-11-2019
Business

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consider in the market for fire extinguishers that there is an external benefit of $10 per extinguisher. What type of externality exists; describe a government policy that would yield a socially efficient outcome?

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Karabo99 Karabo99

22-11-2019

Answer and Explanation:

To internalize the externality a government should provide a subsidy equivalent to the additional benefit or externality given by the product.

So for the external benefit of $10 received by the society, government should give a $10 subsidy to the buyers of fire extinguishers. This shifts the demand curve towards its right giving Optimum.

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