Suppose 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 encourage more production of roses, aligning private incentives with the social benefit of the positive externality, thus leading to an efficient outcome.

Suppose the Production of Roses Generates a Positive Externality in That