When there is a positive externality,
A)the marginal private benefit received by consumers is greater than the external benefit.
B)the marginal social benefit received by consumers is greater than the marginal private benefit.
C)the marginal private benefit received by consumers is greater than the marginal private cost.
D)the marginal private benefit received by consumers is greater than the marginal social benefit.

Question

Quizplus · Accepted Answer

When there is a positive externality, the marginal social benefit received by consumers is greater than the marginal private benefit. This is because the positive effect of the externality creates additional benefits for individuals beyond what they can capture themselves, leading to a higher total benefit for society as a whole. These benefits are not reflected in the individual's decision-making, hence the marginal social benefit exceeds the marginal private benefit.

When There Is a Positive Externality