A positive externality causes
A)the marginal social benefit to be equal to the marginal private cost of the last unit produced.
B)the marginal social benefit to be less than the marginal private cost of the last unit produced.
C)the marginal social benefit to exceed the marginal private cost of the last unit produced.
D)the marginal private benefit to exceed the marginal social cost of the last unit produced.

Question

Quizplus · Accepted Answer

A positive externality occurs when the benefits of a good or service spill over to third parties who are not directly involved in the transaction. This means that the social benefit of the good or service is greater than the private benefit received by the individual consumer. In such a case, the marginal social benefit (MSB) will be greater than the marginal private benefit (MPB). Thus, the correct choice is C, where MSB exceeds MPC.

A Positive Externality Causes