Which of the following statements is not correct? (a) The market mechanism over-produces a good that generates positive externality. (b) A cap and trade of pollution permits can be used by the government to achieve the social optimum. (c) The optimal amou

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Q: 105 (CDS-I/2024)
Which of the following statements is not correct?
(a) The market mechanism over-produces a good that generates positive externality.
(b) A cap and trade of pollution permits can be used by the government to achieve the social optimum.
(c) The optimal amount of subsidy in the case of an activity that produces a positive externality is the difference between the social benefit and the private benefit at the optimum.
(d) Tragedy of Commons is an example of negative externality.

question_subject: 

Economics

question_exam: 

CDS-I

Statement (a) is not correct as the market mechanism typically under-produces goods with positive externalities. Positive externalities lead to benefits enjoyed by others, resulting in less private incentive to produce the optimal quantity.