A Pigouvian subsidy
A) cannot exist with externalities.
B) is the same thing as a Pigouvian tax.
C) is measured in terms of Pigouvian dollars.
D) moves production to the socially optimal level of output.

Question

Quizplus · Accepted Answer

A Pigouvian subsidy is a payment made by the government to a producer to encourage them to increase production of a good with positive externalities. It is the opposite of a Pigouvian tax, which is a tax on a producer to discourage production of a good with negative externalities. The goal of a Pigouvian subsidy is to move production to the socially optimal level of output, which is where the marginal social benefit equals the marginal social cost.

A Pigouvian Subsidy