Answer:
C.subsidizing; taxing
Explanation:
When an activity generates positive externality, the benefits to third parties not involved in production or consumption exceeds the costs. Government can encourage the production of goods that provide positive externality by subsidizing production. Production activities that can generate postive externality is research and development.
When an activity generates negative externality, the benefits to third parties not involved in production or consumption is less than the cost. Government discourage production of goods that generate negative externality by taxation to increase cost of production.
