To explain:
The impact of Pigouvian subsidy.
Concept Introduction:
Externality in Economics:
In economics, externality is a concept which discusses the consequence of an economic activity which can have a positive or a negative impact on the third party who is completely unrelated to the activity.
Positive externality:
Externality which creates benefit to the third party is positive externality.
Negative externality:
Externality which creates harm to the third party is negative externality.
Marginal Social benefit:
The marginal social benefit is the change in total benefit to the society from the consumption of one extra unit of a good or service.
Marginal
The marginal social cost is the change in total cost incurred by the society for the consumption of one extra unit of a good or service.
Marginal individual benefit:
The marginal individual benefit is the change in total benefit to an individual from the consumption of one extra unit of a good or service.
Marginal individual cost:
The marginal individual cost is the change in total cost incurred by an individual for the consumption of one extra unit of a good or service.
Socially optimal level of output:
The level of output at which marginal social benefit is exactly equal to marginal social cost is known as socially optimal level of output. If output is at some other point, market failure exists. It is also known as the
Pigouvian tax:
Tax that is imposed in the market with negative externality. It is imposed to correct the inefficiency created by the negative externality.
Pigouvian subsidy:
Subsidy that is provided in the market with positive externality. It is provided to correct the inefficiency created by the positive externality.

Want to see the full answer?
Check out a sample textbook solution
- 17. Given that C=$700+0.8Y, I=$300, G=$600, what is Y if Y=C+I+G?arrow_forwardUse the Feynman technique throughout. Assume that you’re explaining the answer to someone who doesn’t know the topic at all. Write explanation in paragraphs and if you use currency use USD currency: 10. What is the mechanism or process that allows the expenditure multiplier to “work” in theKeynesian Cross Model? Explain and show both mathematically and graphically. What isthe underpinning assumption for the process to transpire?arrow_forwardUse the Feynman technique throughout. Assume that you’reexplaining the answer to someone who doesn’t know the topic at all. Write it all in paragraphs: 2. Give an overview of the equation of exchange (EoE) as used by Classical Theory. Now,carefully explain each variable in the EoE. What is meant by the “quantity theory of money”and how is it different from or the same as the equation of exchange?arrow_forward
- Zbsbwhjw8272:shbwhahwh Zbsbwhjw8272:shbwhahwh Zbsbwhjw8272:shbwhahwhZbsbwhjw8272:shbwhahwhZbsbwhjw8272:shbwhahwharrow_forwardUse the Feynman technique throughout. Assume that you’re explaining the answer to someone who doesn’t know the topic at all:arrow_forwardUse the Feynman technique throughout. Assume that you’reexplaining the answer to someone who doesn’t know the topic at all: 4. Draw a Keynesian AD curve in P – Y space and list the shift factors that will shift theKeynesian AD curve upward and to the right. Draw a separate Classical AD curve in P – Yspace and list the shift factors that will shift the Classical AD curve upward and to the right.arrow_forward
- Use the Feynman technique throughout. Assume that you’re explaining the answer to someone who doesn’t know the topic at all: 10. What is the mechanism or process that allows the expenditure multiplier to “work” in theKeynesian Cross Model? Explain and show both mathematically and graphically. What isthe underpinning assumption for the process to transpire?arrow_forwardUse the Feynman technique throughout. Assume that you’re explaining the answer to someone who doesn’t know the topic at all: 15. How is the Keynesian expenditure multiplier implicit in the Keynesian version of the AD/ASmodel? Explain and show mathematically. (note: this is a tough one)arrow_forwardUse the Feynman technique throughout. Assume that you’re explaining the answer to someone who doesn’t know the topic at all: 13. What would happen to the net exports function in Europe and the US respectively if thedemand for dollars rises worldwide? Explain why.arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education





