Use the following to answer questions :
Figure: City with Two Polluters
-Suppose that the production of roses generates a positive externality in that travellers 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

Use the following to answer questions :
Figure: City with Two Polluters 
-Suppose that the production of roses generates a positive externality in that travellers 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.

Quizplus · Accepted Answer

A Pigouvian subsidy would incentivize producers to produce the socially optimal amount of roses and account for the positive externality. The other options do not directly address the externality created by rose production.

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