. (Problem 5a). The city of Falls Church, Virginia, subsidizes trees planted in
ID: 1102375 • Letter: #
Question
. (Problem 5a). The city of Falls Church, Virginia, subsidizes trees planted in homeowners' front yards when they are within 15 feet of the street.Which of the following best explains why a municipality would subsidize trees planted on private property, but near the street? A. An optimal Pigouvian subsidy will lead homeowners to plant fewer than the socially optimal quantity of trees. B. Without the subsidy, the market equilibrium quantity would be below the socially optimal quantity. C. Trees planted near the street provide only private benefits. . (Problem 5a). The city of Falls Church, Virginia, subsidizes trees planted in homeowners' front yards when they are within 15 feet of the street.
Which of the following best explains why a municipality would subsidize trees planted on private property, but near the street? A. An optimal Pigouvian subsidy will lead homeowners to plant fewer than the socially optimal quantity of trees. B. Without the subsidy, the market equilibrium quantity would be below the socially optimal quantity. C. Trees planted near the street provide only private benefits.
Explanation / Answer
Answer.) B. Without the subsidy, the market equilibrium quantity would be below the socially optimal quantity.
Tree plantation in homeyard near street provides positive externality as it makes view beautiful and clears the pollutants around the street. Positive externality leads to underproduction as external benefits are not included when equating marginal cost to marginal benefits. therefore, subsidizing tree plantation would encourage people to plant more trees.
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