Economics 9708 · AS & A Level · 7.4

7.4 — practice question

In what circumstances will a government subsidy be most beneficial when producing good X creates externalities?

  • Aexternality caused by good X: negative; price elasticity of demand of good X: <1
  • Bexternality caused by good X: negative; price elasticity of demand of good X: >1
  • Cexternality caused by good X: positive; price elasticity of demand of good X: <1
  • Dexternality caused by good X: positive; price elasticity of demand of good X: >1

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