If the production of a good involves positive externalities,________.
A) the market price of the good is higher than its optimal price
B) the market price of the good is lower than its optimal price
C) the average cost of production of the good in the long run is zero
D) the variable cost of production of the good is zero

Question

Quizplus · Accepted Answer

If the production of a good involves positive externalities, the market price of the good will be lower than its optimal price. This is because the positive externalities create benefits for individuals other than the direct consumers of the good, and these benefits are not reflected in the market price. As a result, the market price will be lower than the socially optimal price that takes into account the full benefits, and the quantity produced will be less than the socially optimal quantity.

If the Production of a Good Involves Positive Externalities,________