A Pigouvian subsidy is:
A)designed to discourage activities generating externalities.
B)designed to encourage activities generating external benefits.
C)appropriate when the marginal social cost curve is above the marginal cost of production curve.
D)appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.

Question

Quizplus · Accepted Answer

A Pigouvian subsidy is designed to encourage activities generating external benefits. It is a government policy that provides financial incentives to firms or individuals that produce goods or services that generate positive externalities. The subsidy aims to increase the supply of the good or service, which in turn will lead to an increase in the positive externality. This helps to correct the market failure that occurs when the private benefit of production is less than the social benefit.

A Pigouvian Subsidy Is