Question

ons to see the fowers, and this tourism has been increasing business activity for many businesses. The local business leaders would ike you to convince Ms. Daisy to plant more flowers so that tourism connues to incroase

Answer 1

A) The business generated for other stores by Ms. Daisy's flowers display is an example of Positive externality (because the action of Ms. Daisy causes the benefits to spill over. When the benefits of an action fall on third person rather than the consumer or producers, then it is called positive externality)

B) Giving Ms. Daisy money to buy more flowers is an example of a pigouvian subsidy.

Pigouvian subsidy are intended to provide to those goods which has positive externality. The subsidy is given to reduce costs of the firm and thus increasing the supply of that particular good. As a result, the supply curve shifts to the right, and the externality is internalized.

C) when you want to encourage an activity, you should subsidize it, so that the production cost decreases, supply increases, supply curve shifts to the right and externality(positive) is internalized.

When you want to discourage an activity, you should tax it, so that the cost of production increases, supply decreases, supply curve shifts to the left and externality(negative) is internalized.