Economist A.C. Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality

What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Pigou believed that, in the case of a positive externality in consumption, the government should give consumers a subsidy equal to the value of the externality. By giving a subsidy equal to the value of the externality, the external benefit will become a private benefit and demand for the product will increase to the point where the market equilibrium is also the efficient equilibrium.