Positive externalities lead to an underallocation of resources in that area relative to that which is socially desirable.

Question

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Positive externalities occur when the societal benefits of a market activity exceed the private benefits of that activity. As a result, individuals may not fully account for the positive effects of their actions, leading to an under-allocation of resources. This means that the market produces less of the good than what would be socially efficient, resulting in a deadweight loss.

Positive Externalities Lead to an Underallocation of Resources in That