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?
What will be an ideal response?
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.
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Under a riparian system, water rights
a. Are allocated according to its most highly-valued uses b. Are separate from the ownership of land c. Are based on who moved to an area first d. Are freely traded in water markets e. Are owned by those owning adjacent land
To increase its economic growth, a nation should
A) limit the number of people in college because they produce nothing. B) encourage spending on goods and services. C) encourage education because that increases the quality of labor. D) increase current consumption. E) eliminate expenditure on capital goods.