Exhibit 30-5

-Refer to Exhibit 30-5. If a positive externality exists, then curve __________ represents the marginal social benefit curve and the area __________ represents the market failure.

Question

Exhibit 30-5
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-Refer to Exhibit 30-5. If a positive externality exists, then curve __________ represents the marginal social benefit curve and the area __________ represents the market failure.

Quizplus · Accepted Answer

Curve 2 represents the marginal social benefit curve because it includes the external benefit that is not captured by the market. The area ABC represents the market failure because it represents the difference between the socially optimal quantity (Q*) and the market quantity (Qm).

Exhibit 30-5 ​

Exhibit 30-5