When the market for product Y includes a positive externality,:
A)marginal social cost exceeds marginal private cost.
B)marginal private cost exceeds marginal social cost.
C)marginal social benefit exceeds marginal private benefit.
D)marginal private benefit exceeds marginal social benefit.

Question

Quizplus · Accepted Answer

When a market for a product includes a positive externality, the marginal social benefit exceeds the marginal private benefit. This means that the benefit to society as a whole is greater than the benefit to the individual who is consuming the product. For example, the use of public transport may have a positive externality such as reducing traffic congestion which benefits not only the individual using public transport but also other road users.

When the Market for Product Y Includes a Positive Externality