Refer to Figure 10-3. If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would

A) introduce a subsidy of $2 per unit.
B) impose a tax of $4 per unit.
C) introduce a subsidy of $4 per unit.
D) impose a tax of $2 per unit.

Socially Optimal Level

The most efficient allocation of resources that maximizes societal welfare, often referenced in discussions of public goods and externalities.

Subsidize

The act of providing financial assistance or support, often by a government to industries, businesses, or individuals, to encourage production, reduce prices, or promote economic goals.

Government

The organization, or agency through which a political unit exercises authority and performs functions and which is usually classified according to the distribution of power within it.