Question

Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Which type of externality is likely to result from a consumer's decision to purchase a solar-powered vehicle instead of a gas-powered vehicle, and how does it arise? This decision generates a negative externality because companies that do not produce solar-powered cars will be put out of business. positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution. positive externality because individuals can use the money they save on gasoline to help the local community. negative externality because including new technology in the cars will drive up the market price. Suppose the government is interested in moving the market closer to the socially optimal quantity. Which policy would likely result in the desired outcome? a subsidy to consumers who choose to purchase solar-powered vehicles granting one firm monopoly rights to produce solar-powered vehicles a new tax levied on the makers of solar-powered cars a price floor above the observed average price for a solar-powered car

Answer 1

This decision generates a positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution.

A subsidy to consumers who choose to purchase solar-powered vehicles.

Step-by-step explanation:

Positive externality is when the benefits of economic activities to third parties exceeds the costs. If consumers switch to solar powered cars, the reduced population is a benefit to third parties. Thus, the switch causes postive externality.

One way the government can encourage the purchase of solar powered cars is to grant subsidies to consumers. Subsidies reduces the cost of purchase of the solar powered cars and encourages consumers to purchase the cars

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