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How does government correct for positive externalities?by taxing consumers by taxing...

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skyler89 | Student, College Sophomore | (Level 2) Honors

Posted October 9, 2012 at 3:01 PM via web

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How does government correct for positive externalities?

by taxing consumers

by taxing producers
by subsidizing producers
by separating ownership from control

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 9, 2012 at 3:12 PM (Answer #1)

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First of all, we should note that government is not really trying to “correct for” positive externalities.  These are good things, so what government is really trying to do is to encourage positive externalities.  Of the choices that you have given, it does this by subsidizing producers.

For example, education brings with it positive externalities.  The government promotes this in part simply by providing free public education at the primary and secondary levels.  But it also subsidizes providers of things like higher education as it gives large amounts of aid to universities both public and private. 

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