For a production process that involves a positive externality,it is true that
A)a per unit tax could be imposed on the producer to achieve the socially optimal level of production.
B)marginal social benefit is less than marginal private benefit.
C)marginal social cost is more than marginal private cost.
D)without government intervention the market will produce too much of this good.
E)a subsidy to producers could increase production to the socially optimal level.

Question

Quizplus · Accepted Answer

A positive externality means that the social benefit of the production process is greater than the private benefit. This implies that without government intervention, the market will produce less than the socially optimal level of production. A subsidy to the producers would increase their private benefits and lead to an increased level of production, which would also increase the social benefit to society. Consequently, this would bring about the socially optimal level of production.

For a Production Process That Involves a Positive Externality,it Is