Suppose that the production of roses generates a positive externality in that travelers enjoy the scenic beauty of the garden.An appropriate government policy yielding the efficient outcome would be a:
A)Pigouvian tax.
B)Pigouvian subsidy.
C)system of rose-production permits.
D)reduction in transaction costs.

Question

Quizplus · Accepted Answer

A Pigouvian subsidy would increase the amount of rose production, leading to a greater positive externality for travelers who enjoy the scenic beauty of the garden. This would align private incentives with social benefits and lead to an efficient outcome. Option A and C would lead to a reduction in rose production, which is not desirable in this case. Option D is not directly related to the externality and would not address the market failure caused by the positive externality.

Suppose That the Production of Roses Generates a Positive Externality