When there is a positive externality, at the free market equilibrium,
A) the marginal private costs are minimized.
B) the marginal private benefit is equal to the marginal social benefit.
C) the marginal private benefit is less than the marginal social benefit.
D) the marginal private benefit is greater than the marginal social benefit.

Question

Quizplus · Accepted Answer

When there is a positive externality, the benefit to society (marginal social benefit) from consuming an additional unit of a good or service is greater than the benefit received by the consumer (marginal private benefit). This discrepancy leads to underproduction or underconsumption from a societal perspective.

When There Is a Positive Externality, at the Free Market