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AP® Microeconomics

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Externalities: Remedy for Externality from Table

APMICR-XLUSVC

The table below represents a perfectly-competitive market, which produces 50 units more than the socially optimal quantity as a result of externalities.

Quantity Demanded Price Quantity Supplied
450 \$5 100
400 \$10 275
325 \$15 325
275 \$20 500
200 \$25 600



Which of the following options would be the best remedy if the government was attempting to correct for the externality so that the market would produce the socially optimal quantity?

A

$5 per-unit tax

B

$5 per-unit subsidy

C

$10 per-unit tax

D

$10 per-unit subsidy

E

$750 lump-sum subsidy