When Pigouvian subsidy is imposed on a market with a positive externality,total surplus:
A) decreases less than the increase in consumer surplus.
B) increases less than the decrease to producer surplus.
C) increases more than the increase in consumer surplus.
D) decreases more than the decrease to producer surplus.

Question

Quizplus · Accepted Answer

A Pigouvian subsidy is designed to encourage activities with positive externalities, leading to an increase in total surplus by aligning private incentives with social benefits, thus increasing total welfare more than just the increase in consumer surplus.

When Pigouvian Subsidy Is Imposed on a Market with a Positive