Suppose that the marginal social benefit curve of a good lies above the marginal private benefit curve. In this case, the purchase of the good involves a _____ externality, and the good will be purchased in an amount that is _____ than the socially optimal.

Question

Quizplus · Accepted Answer

When the marginal social benefit of a good is higher than the marginal private benefit, it indicates the presence of a positive externality. This means that the good has additional benefits to society that are not captured by the private market. As a result, the good will be under-consumed, or purchased in an amount that is less than the socially optimal level, because private individuals do not take into account the external benefits to society.

Suppose That the Marginal Social Benefit Curve of a Good