Chapter 14R, Problem 24MCQ

To determine

The correct option for Pigouvian subsidy

Answer to Problem 24MCQ

From the available options, the correct option is the marginal external benefit.

Explanation of Solution

As Pigouvian subsidy highly concentrates on the benefit or subsidy that delivers a positive effect on others in the society, therefore, this is appropriate in the market with the marginal external benefit. Whereas marginal external cost, marginal social cost, marginal private cost, and Pigouvian tax are not benefits for others, these are costs and they are also for that individual who has produced/used that commodity and there may not be always benefit for others. Therefore, the correct option is b (marginal external benefit), and all options: a, c, d, and e are incorrect.

Economics Concept Introduction

Introduction: Pigouvian subsidy is a subsidy or benefit which helps to encourage positive behavior or an impact that delivers positive outcomes to others in the society.