Question

By allowing an income-tax deduction for charitable contributions, the government ____ (A) encourages a private solution to a particular negative-externality problem..(B) discourages a private solution to a particular negative-externality problem.(C) discourages a private solution to a particular positive-externality problem.(D) encourages a private solution to a particular positive-externality problem.

Answer 1

Answer: the correct answer is D) encourages a private solution to a particular positive-externality problem.

Explanation: it encourages a private solution because the government reduces taxes if private companies donate to charities. Donating to charities is a positive externality because it contributes to the common welfare of a country.