Suppose that flower gardens create a positive externality equal to $1 per plant.Further suppose that the local government offers a $1 per-plant subsidy to growers.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?
A)The equilibrium quantity is less than the socially optimal quantity.
B)The equilibrium quantity is greater than the socially optimal quantity.
C)They are equal.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

The $1 per-plant subsidy offsets the positive externality, aligning the private cost with the social cost, thus making the equilibrium quantity equal to the socially optimal quantity.

Suppose That Flower Gardens Create a Positive Externality Equal to $1