In the presence of positive externalities, the market will choose a price that is__________ and produce a quantity that is __________ than the socially optimal price and quantity.
A) higher; lower
B) lower; lower
C) higher; higher
D) lower; higher
E) impossible to know without more information about market demand and supply

Question

Quizplus · Accepted Answer

In the presence of positive externalities, the market will choose a price that is higher and produce a quantity that is lower than the socially optimal price and quantity. This is because the market only takes into account the private costs and benefits of the good, and not the external benefits that are created.

In the Presence of Positive Externalities, the Market Will Choose