If consuming a good creates a positive externality,
A)marginal private benefits exceed marginal social benefits
B)marginal social benefits exceed marginal private benefits
C)private demand is equal to marginal social benefit
D)private demand is greater than marginal social benefit
E)the private demand curve shifts to the right to coincide with the marginal social benefit curve

Question

Quizplus · Accepted Answer

When consuming a good creates a positive externality, the marginal social benefits exceed the marginal private benefits. This means that there are additional benefits to society that are not accounted for by the individual consumer, leading to an underconsumption of the good from a societal perspective. In order to correct for this market failure, policymakers may intervene to increase consumption through measures such as subsidies or public provision of the good.

If Consuming a Good Creates a Positive Externality