Figure 15-1
-When there are beneficial externalities in a market,

Question

Figure 15-1 
-When there are beneficial externalities in a market,

Quizplus · Accepted Answer

When there are beneficial externalities in a market, marginal social benefit (MSB) is above marginal private benefit (MPB), which means that there is a positive spillover effect on society that is not accounted for by individual consumers. As a result, the market equilibrium output level is lower than the socially optimal output level, leading to an underallocation of resources. To achieve the socially optimal level of output, the government can intervene by providing subsidies, tax credits, or other incentives to encourage the consumption of the good or service that generates the positive externality.

Figure 15-1 -When There Are Beneficial Externalities in a Market