20. How can the government internalize a positive externality? (1) By taxing production, which would decrease supply (2) By taxing production, which would increase supply (3) By subsidizing production, which would increase supply (4) By subsidizing production, which would decrease supply16. To ensure the market reaches the social optimum in presence of a technology spillover, how should the government subsidize producers? (1) By use of a corrective tax on producers (2) By transferring income to the low-income portion of the population (3) By removing the right of producers to seek patent protection (4) By an amount equal to the value of the technology spillover 17. A steel mill has 10 tradable pollution permits. Each permit allows for 1 unit of pollution and is valued at $1,000. With new production technology, it can eliminate 1 unit of its pollution at a cost of $750, and its remaining 9 units of pollution at a cost of $1,100 each. If the company desires to maximize profit, it should: (1) buy an additional permit and increase its level of pollution. (2) sell a permit for 1 unit of pollution and invest in the new pollution-reducing technology. 3) sell a permit for 1 unit of pollution and close its polluting plant. (4) sell all of its pollution permits and invest in the new pollution-reducing technology. THE NEXT TWO (2) QUESTIONS ARE BASED ON THE FOLLOWING GRAPH: Price ($) Social Cost 10 Supply (Private Cost) 8 6 4 Demand 20 30 Quantity 18. In the diagram, the dollar value of the deadweight loss caused by the externality is: (1) $5 (2) $10 (3) $15 (4) $20 19. In the diagram, the corrective tax that would cause the firm to internalize the externality is: (1) $4 per unit of output. (2) $3 per unit of output. (3) $2 per unit of output. (4) $1 per unit of output