If positive externalities are present in a free market,________ at any output level.
A) the marginal cost of production equals the average cost of production
B) the marginal social cost of production exceeds the marginal private cost
C) the marginal private benefit from production equals the marginal social benefit
D) the marginal social benefit of production exceeds the marginal private benefit

Question

Quizplus · Accepted Answer

Positive externalities occur when the benefits of production spill over to individuals outside the market, creating a societal benefit that is not reflected in the private benefit accrued by producers. In this case, the marginal social benefit (MSB) of production exceeds the marginal private benefit (MPB), as the MSB includes the positive externalities whereas the MPB only reflects the private benefit to producers. Therefore, the correct answer would be D.

If Positive Externalities Are Present in a Free Market,________ at Any