Question
Suppose Nauru is a small country that can import rice at the world price. There is a positive production externality from domestic rice production that
Suppose Nauru is a small country that can import "rice" at the world price. There is a positive production externality from domestic rice production that producers cannot appropriate. Specifically,this means thateach unit of rice produced yields a marginal external social benefit. Which of the following policies should be implemented by Nauru to address this market failure if the goal is to maximize social welfare?:
a. A tariff on rice imports
b. An export subsidy for rice exports
c. A quota on rice imports
d. A production subsidy for domestic rice production
Which option is correct?
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