Exhibit 31-5

-Refer to Exhibit 31-5. If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Question

Exhibit 31-5
 
-Refer to Exhibit 31-5. If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is

Quizplus · Accepted Answer

The distance between points D and B represents the external benefits associated with the positive externality. The socially optimal output is where marginal social benefit (MSB) equals marginal social cost (MSC). This occurs at point S1 where QS1 equals Q* and P1 equals P*. Since there is a positive externality, MSB is greater than the demand curve (MD), indicating that the market equilibrium at point B is inefficient. To reach the socially optimal output, the quantity should increase to QS1, which is higher than Q* and the price should decrease to P1, which is lower than P*. This is represented by the curve Q₂. Therefore, the answer is C) D and B; Q₂.

Exhibit 31-5 -Refer to Exhibit 31-5. If a Positive Externality Exists,then the Positive