If the consumption of a good gives rise to external economies, then less of the good is being consumed than is socially optimal.

Question

Quizplus · Accepted Answer

External economies occur when the consumption or production of a good has positive effects on third parties not directly involved in the transaction. If these positive externalities are not taken into account by the market, the good will be under-consumed from a societal perspective, leading to a consumption level that is less than socially optimal.

If the Consumption of a Good Gives Rise to External