Exhibit 31-5

-Refer to Exhibit 31-5. If a positive externality exists,then the market ____________ output by the amount ________________.

Question

Exhibit 31-5
 
-Refer to Exhibit 31-5. If a positive externality exists,then the market ____________ output by the amount ________________.

Quizplus · Accepted Answer

In a market with a positive externality, the market underproduces because the supply curve only reflects private costs and not the additional social benefits. Therefore, the socially optimal level of output is at Q1S1U1B12, where the demand curve intersects with the social marginal cost curve. The market equilibrium is at Q1S1U1B11, which means there is a difference of QS1U1B12S1U1B0 - QS1U1B11S1U1B0 in the output.

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