A Pigovian subsidy __________.

Question

exists when marginal social benefits exceed marginal social costs

encourages activities that create external benefits

discourages activities that create external costs

maximizes internal costs

Answer 1

A Pigovian subsidy encourages activities that create external benefits.

Pigovian subsidies are intended to promote behaviors that have positive effects on third parties not accounted for in the market transactions, thus addressing the issue of external benefits.