If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

A) taxed.
B) prohibited.
C) subsidized.
D) left alone.

Question

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to beA) taxed.B) prohibited.C) subsidized.D) left alone.

Lance Alves · Accepted Answer

Final Answer : C, Explanation :  When an activity creates external benefits (positive externalities) in addition to private benefits, economic theory suggests that it should be subsidized. This is because the activity provides additional value to society that is not captured in the market price, leading to underproduction of the good or service. Subsidies can help align the private incentives with the social benefits, encouraging more of the activity to occur.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

A) taxed.
B) prohibited.
C) subsidized.
D) left alone.

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