Under what conditions is a market affected by a positive externality
A)The optimum level of output is less than the free market level of output, and the optimum price is greater than the free market price.
B)The optimum level of output is greater than the free market level of output, and the optimum price is less than the free market price.
C)The optimum level of output is greater than the free market level of output, and the optimum price is greater than the free market price.
D)The optimum level of output is less than the free market level of output, and the optimum price is less than the free market price.

Question

Quizplus · Accepted Answer

In the case of a positive externality, the free market output level is lower than the socially optimal output level. This means that the optimum level of output is greater than the free market level of output. Additionally, since the externality is positive, the price paid by consumers does not fully capture the benefits to society, meaning that the optimum price is less than the free market price. Therefore, B is the correct choice.

Under What Conditions Is a Market Affected by a Positive