Asked by Breydon English on May 29, 2024
Verified
Betsy loves to garden,and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community,the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity.
A) provide a subsidy;greater
B) impose a tax;lower
C) provide a subsidy;lower
D) impose a tax;greater
Positive Externality
A beneficial effect experienced by a third party due to an economic activity, without compensation.
Socially Optimal
Refers to a state or condition in which resources are allocated in the most efficient manner from the perspective of society as a whole, maximizing overall well-being.
Market Quantity
Refers to the total amount of a particular good or service that is available for purchase in a market at a specific point in time.
- Distinguish positive societal impacts and the types of endeavors that bring them about.
- Describe the concept of a Pigouvian subsidy and its application for external benefits.
Verified Answer
AG
Akeisha GidronMay 31, 2024
Final Answer :
C
Explanation :
When a positive externality exists, such as the enjoyment Betsy's neighbors get from her rose garden, the market tends to produce less of the good than is socially optimal because it doesn't account for the external benefits to others. A subsidy can help increase the quantity produced to the socially optimal level by lowering the cost for the producer.
Learning Objectives
- Distinguish positive societal impacts and the types of endeavors that bring them about.
- Describe the concept of a Pigouvian subsidy and its application for external benefits.