Given a positive externality,the marginal private benefit curve lies to the __________ of the demand curve,with the market output __________ the socially optimal output.

Question

Quizplus · Accepted Answer

When there is a positive externality, the marginal social benefit (MSB) curve lies to the right of the marginal private benefit (MPB) curve. As a result, the market output is lower than the social optimal output. This is because the market only takes into account the private benefits whereas the social optimal output takes into account both private and social benefits. Therefore, the MPB curve lies below the MSB curve leading to an output level that is less than the socially optimal output.

Given a Positive Externality,the Marginal Private Benefit Curve Lies to the __________