If a positive externality exists, __________ in order for the socially optimal output to be reached.

Question

Quizplus · Accepted Answer

A positive externality occurs when the consumption or production of a good or service benefits a third party who is not directly involved in the transaction. In this case, demand needs to increase in order for the socially optimal output to be reached. This is because when demand increases, both the individual and social marginal benefit will increase, and the market will produce more of the good or service. This will lead to a higher level of societal welfare.

If a Positive Externality Exists, __________ in Order for the Socially