When Positive Externalities Exist in a Market,if a Pigouvian Subsidy

question 65

Multiple Choice

When positive externalities exist in a market,if a Pigouvian subsidy is imposed:

• A) those who interact in the market will lose surplus.
• B) those who interact in the market will gain surplus.
• C) those who do not interact in the market, but are affected by the externality, will gain surplus.
• D) None of these statements is necessarily true.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price, with high elasticity indicating greater responsiveness.

Total Expenditures

The sum of all spending or expenses incurred by an individual, household, or organization.

Perfectly Inelastic

describes a situation where the demand for a product does not change in response to changes in its price.

Unitary

Describes a system of government where there is no division of powers between regional governments and a central government, or a singular entity in a given context.