Pigouvian subsidies __________________________________________.

Question

Resolve the economic problem created by a positive externality.

Result in the decrease in the production and consumption of a private good to the socially optimal level.

Decrease the socially optimal level of production.

Resolve the economic problem created by a negative externality.

Answer 1

Pigouvian subsidies resolve the economic problem created by a positive externality.

These subsidies are intended to encourage the production or consumption of goods that generate positive externalities, thus aligning private incentives with social benefits and promoting a socially optimal level of production and consumption.