A Pigouvian subsidy is a subsidy to a market activity that has a significant External Benefit.
Alex Tabarrok (reference below) illustrates how a Pigouvian Tax, equal to the external benefit, makes the Private Benefit plus subsidy equal to the Private Benefit, and thus moves the price and quantity to the Efficient Equilibrium.
Atlas topic, subject, and course
Alex Tabarrok, minute 5:00 of External Benefits (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/flu-shot-positive-externalities-pigovian-subsidy, accessed 6 May 2016.
Page created by: Ian Clark, last modified 6 May 2016.