Exhibit 30-5

-Refer to Exhibit 30-5. If a positive externality exists, then the market ____________ output by the amount ________________.

Question

Exhibit 30-5
​
 
-Refer to Exhibit 30-5. If a positive externality exists, then the market ____________ output by the amount ________________.

Quizplus · Accepted Answer

When a positive externality exists, the market underproduces because the social benefit of the good exceeds the private benefit, leading to a lower quantity produced than is socially optimal. The correct amount by which the market underproduces is the difference between the socially optimal quantity and the quantity produced by the market.

Exhibit 30-5 ​

Exhibit 30-5