The exchange-correlation potentials upsilon(xc) which are currently fashionable in density functional theory (DFT), such as those obtained from the local density approximation (LDA) or generalized gradient approximations (GGAs), all suffer from incorrect asymptotic behavior. In atomic calculations, this leads to substantial overestimations of both the static polarizability and the frequency dependence of this property. In the present paper, it is shown that the errors in atomic static dipole rind quadrupole polarizabilities are reduced by almost an order of magnitude, if a recently proposed model potential with correct Coulombic long-range behavior is used. The frequency dependence is improved similarly. The model potential also removes the overestimation in molecular polarizabilities, leading to slight improvements for average molecular polarizabilities and their frequency dependence. For the polarizability anisotropy we find that the model potential results do not improve over the LDA and GGA results. Out method for calculating frequency-dependent molecular response properties within time-dependent DFT, which we described in more detail elsewhere, is summarized.