When the external benefits in a market are taken into account, the good's price is higher and the amount bought and sold is greater.

Question

Quizplus · Accepted Answer

When external benefits (positive externalities) are accounted for, the social marginal benefit is higher than the private marginal benefit, leading to a higher equilibrium price and quantity. This is because the external benefits increase the total value of the good to society beyond the value received by individual buyers and sellers. As a result, buyers are willing to pay more and sellers are willing to produce and sell more to capture these benefits.

When the External Benefits in a Market Are Taken into Account