All of these are used when positive externalities exist EXCEPT
A coupons.
B subsidies.
C vouchers.
D taxes.
The correct answer and explanation is:
The correct answer is D taxes.
Positive externalities occur when a good or service provides benefits to people who are not directly involved in its consumption or production. Examples include education, vaccinations, and public parks. Because the private market often underproduces these goods, governments intervene to encourage more consumption or production.
Coupons, subsidies, and vouchers are all tools designed to increase consumption or production of goods with positive externalities.
- Coupons reduce the price consumers pay, encouraging more people to buy the product or service.
- Subsidies are financial support provided to producers or consumers, lowering the cost and encouraging increased supply or demand.
- Vouchers provide targeted financial assistance that allows consumers to access beneficial services, such as education or healthcare.
These interventions help internalize the positive externality by making it more affordable or accessible.
Taxes, on the other hand, are typically used to discourage activities that create negative externalities, like pollution or smoking. By increasing the cost of harmful goods or services, taxes reduce consumption and production, aligning private costs with social costs.
Using taxes in the context of positive externalities would be counterproductive because they would raise prices and reduce consumption, which is the opposite of what is needed to correct the underconsumption caused by positive externalities.
In summary, taxes are not used to address positive externalities; instead, governments use coupons, subsidies, and vouchers to encourage more consumption or production of goods that have beneficial spillover effects on society.