When a positive externality exists, the equilibrium quantity that emerges from a competitive market is

Question

Quizplus · Accepted Answer

A positive externality means that the social benefit is greater than the private benefit. In a competitive market, firms only consider their private costs and benefits when making decisions, so they will not take into account the positive externality. As a result, the equilibrium quantity will be too low because the social benefit is not being fully realized.

When a Positive Externality Exists, the Equilibrium Quantity That Emerges