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10. Policy makers decide they wish to encourage the consumption of an activity that generates I. An excise tax on each unit of the good consumed helps the policy maker achieve the IL. A subsidy per unit of the good consumed helps the policy maker achieve the so- I. Intervention in this market by the policy maker results in a socially less-optimal positive externalities. Which of the following statements is true? socially optimal amount of consumption of this good. cially optimal amount of consumption of this good. outcome for this market because government intervention in any market results in a deadweight loss. A. Statement I B. Statement C. Statement D. None of the above statements is true given this situation.
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Correct answer:

B

Subsidy will reduce the price as it will be an incentive for buyers to buy at lower price and consume more, while sellers will sell more at lower price due to subsidies on offer.

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