Pigouvian subsidization
A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality

Question

Quizplus · Accepted Answer

Pigouvian subsidization is a type of subsidy that is provided to encourage the production and consumption of goods with positive externalities. The subsidy is used to increase the supply and lower the price of these goods, making it more affordable for consumers. This creates an incentive for producers to invest in the production of goods with positive externalities, which can lead to a reduction in negative externalities. Hence, option B is the correct answer.

Option A describes Pigouvian taxation, which involves the use of taxes or fees to reduce the negative impact of externalities. Option C describes the legal principle of liability or compensation, which involves holding parties accountable for any harm caused due to their actions. Option D describes a situation where the victims of the externality pay a tax to the producers of the externality, which is not a part of Pigouvian subsidization.

Pigouvian Subsidization