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21 November, 16:41

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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  1. 21 November, 20:27
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    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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