Suppose that the purchase of a good involves a marginal external benefit of $2 per unit. In this case, the purchase of the good involves a _____ externality, and it will be purchased in an amount that is _____ than socially optimal.

Question

Quizplus · Accepted Answer

The marginal external benefit of $2 per unit indicates a positive externality because it represents an additional benefit to society that is not captured by the direct buyer and seller of the good. When there is a positive externality, the good will be purchased in an amount that is less than socially optimal because the market does not account for the external benefits to others.

Suppose That the Purchase of a Good Involves a Marginal