A government is considering intervening in a market to correct a market failure. In which of the following situations is the intervention most likely to lead to an increase in net economic welfare?
The government introduces a guaranteed minimum price for a farm product set below the market-clearing price to stabilize agricultural incomes.
The government imposes an indirect tax equal to the marginal external cost on a good where MSC>MPCMSC > MPCMSC>MPC, provided the administrative cost of implementing the tax is less than the deadweight loss of the market failure.
The government provides a unit subsidy to producers of a merit good with perfectly inelastic demand (PED=0PED = 0PED=0) in order to increase consumption to the socially optimal level.
The government funds the provision of a non-excludable public good by imposing a tax on a complement good that has a perfectly elastic demand (PED=∞PED = \inftyPED=∞).
