When the social decision-maker perceives benefits to each unit of an activity that the private decision-maker does not (in addition to the benefits the private decision-maker perceives),the __________________.

Question

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When the social decision-maker perceives benefits to each unit of an activity that the private decision-maker does not, the marginal social benefit (MSB) lies above the marginal private benefit (MPB). This creates a positive externality, as there are additional benefits to society beyond what the private decision-maker considers. The MSB represents the total benefit to society, while the MPB only represents the benefit to the individual making the decision. Therefore, the social benefit is greater than the private benefit, and the MSB curve lies above the MPB curve.

When the Social Decision-Maker Perceives Benefits to Each Unit of an Activity