If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, which of the following would likely occur?
A) a greater misallocation of resources
B) a decrease in the market price of the product
C) an increase in consumption
D) a decrease in consumption

Question

Quizplus · Accepted Answer

When consumers are able to receive the full social benefits associated with the consumption of goods involving positive externalities, they are incentivized to consume more, leading to an increase in consumption. This happens because the social benefits are now reflected in the private benefits received by the consumer, making it more favorable for them to consume that product. This increase in consumption can lead to a greater allocation of resources towards the production of that product, which can have positive effects on the economy. A decrease in market price may or may not occur, and misallocation of resources is less likely as the consumption is now aligned with the social benefits. Therefore, C is the correct answer.

If Consumers Were Able to Receive the Full Social Benefits