Refer to Figure 2. This market is characterized by a positive externality. a negative externality. government intervention. None of the answers is correct.

Fill in the blanks: There is ____________ in an economy with positive externality. This problem can be dealt with by providing a _______ to the individual(s) creating the positive externality.

A positive externality arises when a third party, outside the market transaction, fails to allocate resources efficiently Pays less for the good or service benefits from a market transaction pays a pollution tax to balance social costs

The government wants to address the pollution associated with the production of a good by introducing a tax on negative externality. The government is unsure about the magnitude of the negative externality (social cost of pollution) and hence it is considering two options: a high tax and a low tax option.  Which statement(s) is/are true? Mark all that applies. Group of answer choices The government’s tax revenue will be higher under the high tax option. The government’s tax revenue may not be higher under the high tax options. The consumption level of the good may be lower under the high tax option. Regardless of whether the high tax or the low tax option is introduced, the cost of the tax is still lower than the social cost of pollution. Both high tax and low tax options are cost-effective in achieving a given level of pollution reduction as long as the same tax applies to all polluting sources. Only the high tax option is cost-effective.