Which policy is a direct method for internalizing a positive externality in consumption?

• A. A per-unit tax on the good
• B. A tariff on imports
• C. A per-unit subsidy to consumers
• D. Direct government provision of the good to raise consumption

Answer: (D)

When a good has a positive externality in consumption, the private market under Provides less than the socially optimal amount because individuals don’t capture all the additional benefits for society. The government can fix this by supplying the good directly, making it available to people—often for free or at a very low price. By providing the good itself, the government directly raises consumption to the level where the marginal social benefit equals the marginal social cost, capturing those external benefits to the broader population. Subsidies to consumers could also push consumption upward, but direct provision explicitly ensures access and delivery of the good itself. The other options don’t achieve this: a per-unit tax lowers consumption and is used to address negative externalities; a tariff affects imports rather than internalizing a domestic positive externality; a subsidy to consumers increases consumption but doesn’t involve the government supplying the good directly.