The net increase to total surplus when a positive externality is corrected is due to:
A) the transfer of surplus from those affected by the externality to the consumer.
B) the increased number of units bought and sold in the market.
C) the transfer of surplus from the consumer to those affected by the externality.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

Correcting a positive externality increases market efficiency and leads to the production of more goods or services, thereby increasing the number of units bought and sold in the market. This, in turn, leads to an increase in total surplus, where both producers and consumers benefit, without any transfers of surplus from one party to another. So, option B is the best choice. Option A and C are incorrect because they suggest transfers of surplus from one group to another, which is not necessary when correcting a positive externality. Option D is incorrect because it does not give any explanation of what happens when a positive externality is corrected.

The Net Increase to Total Surplus When a Positive Externality