In the presence of ________ externalities, too much of the good is produced and in the presence of ________ externalities, too little of the good is produced.
A) positive; negative
B) negative; positive
C) positive; no
D) no; negative

Question

Quizplus · Accepted Answer

Negative externalities (such as pollution from factories) lead to overproduction because the social costs are not fully accounted for by the producers. Positive externalities (like the benefits of education or vaccinations) result in underproduction because the full social benefits are not captured by the market.

In the Presence of ________ Externalities, Too Much of the Good