Private markets fail to reach a socially optimal level when positive consumption externalities are present because:
A)private benefit equals social benefit at the private market solution
B)private costs exceed private benefits at the private market solution
C)social value exceeds private value at the private market solution
D)private costs exceed social benefit at the private market solution

Question

Quizplus · Accepted Answer

When positive consumption externalities are present, the social value of a good or service exceeds the private value because not all benefits of consumption are captured by the consumer. This leads to underconsumption from a societal perspective, as the market does not account for the additional social benefits.

Private Markets Fail to Reach a Socially Optimal Level When