Which of the following describes how a positive externality affects a competitive market?
A)The externality causes a difference between the private benefit from consumption and the social benefit.
B)The externality causes a difference between the private benefit from production and the social cost of production.
C)The externality causes quantity demanded to exceed quantity supplied.
D)The externality causes a difference between the social cost of production and the social cost of consumption.

Question

Quizplus · Accepted Answer

A positive externality occurs when the social benefit from consuming a good exceeds the private benefit. This means that the demand curve does not reflect the full value of the good to society. As a result, the equilibrium quantity in a competitive market will be lower than the socially optimal quantity, since the demand curve only takes into account the private benefits and costs of consumption. So, the externality causes a difference between the private benefit from consumption and the social benefit.

Which of the Following Describes How a Positive Externality Affects