Question

Suppose that recycling rubber for running shoes creates an external benefit of $2.00 per tonne of rubber. There are no external costs. The efficient amount of rubber will be recycled when the government creates a

A) subsidy of more than $2.00 per tonne of rubber.
B) subsidy of $2.00 per tonne of rubber.
C) tax of more than $2.00 per tonne of rubber.
D) tax of $2.00 per tonne of rubber.
E) voucher valued at $2.10 a tonne of rubber.

Answer 1

The efficient amount of rubber will be recycled when the government creates a B) subsidy of more than $2.00 per tonne of rubber.

Step-by-step explanation:

The efficient amount of rubber will be recycled when the government creates a subsidy of more than $2.00 per tonne of rubber. This is because the external benefit of recycling rubber is $2.00 per tonne, and a subsidy of more than $2.00 would incentivize recycling by covering the cost of recycling and providing an additional benefit.

Any subsidy less than $2.00 would not fully cover the external benefit and would not lead to the efficient amount of recycling.