In a free-market economy, a product which entails a positive externality will be
A) overproduced.
B) underproduced.
C) produced at the optimal level.
D) provided solely by the government.

Question

Quizplus · Accepted Answer

In a free-market economy, a product which entails a positive externality, such as education or vaccines, will be underproduced because private firms only consider their private costs and benefits, not the social benefits of the good. Therefore, the market fails to allocate resources efficiently, leading to a market failure.

In a Free-Market Economy, a Product Which Entails a Positive