If a positive externality exists in the provision of a good that is provided in a perfectly competitive market without government intervention,then,at the market equilibrium level of output,
A) additional net gains to society are possible by reducing output.
B) additional net gains to society are possible by raising output.
C) the marginal social benefit equals the marginal social cost.
D) additional net gains to society are not possible by either increasing or decreasing output.
E) output is at the socially optimal level of output.

Question

Quizplus · Accepted Answer

In the presence of a positive externality, the market equilibrium output is lower than the socially optimal level because the marginal social benefit exceeds the marginal private benefit. Increasing output would lead to additional net gains to society.

If a Positive Externality Exists in the Provision of a Good