When a Pigouvian subsidy is imposed on a market with a positive externality efficiency:
A) is not affected.
B) decreases.
C) increases.
D) drops to zero.

Question

Quizplus · Accepted Answer

A Pigouvian subsidy is designed to counteract a negative externality by increasing the demand for a good or service that generates positive externalities. Therefore, imposing a Pigouvian subsidy on a market with a positive externality would increase the demand for the good or service, leading to an increase in efficiency. So, the answer is C) increases.

When a Pigouvian Subsidy Is Imposed on a Market with a Positive