When the social cost of an externality is lower than its private cost:
A)society is likely to benefit from a corrective tax
B)the externality is a positive one and society will not consume enough of the good
C)the externality is a positive one and society will consume too much of the good
D)society will benefit from the introduction of tradeable permits for production of the good

Question

Quizplus · Accepted Answer

When the social cost is lower than the private cost, it indicates a positive externality, meaning the good provides additional benefits to society that are not reflected in the private cost, leading to underconsumption.

When the Social Cost of an Externality Is Lower Than