How do per unit subsidies affect the efficiency of resource allocation in the presence of externalities?

Per unit subsidies are payments given by the government for each unit of a good produced or consumed. These subsidies can help correct market failures caused by externalities, which are costs or benefits not reflected in the prices of goods. For example, if a company produces solar panels, it benefits society by reducing pollution, but it might not earn enough money to cover its costs. By providing a subsidy, the government encourages more production of solar panels, aligning the private incentive with the social benefit. This can lead to a more efficient allocation of resources, as more solar panels are produced, benefiting both the economy and the environment.