The existence of spillover benefits results in an equilibrium quantity in the market that is socially optimal.

Question

Quizplus · Accepted Answer

The existence of spillover benefits (positive externalities) means that not all benefits of a good or service are captured in the market price. This leads to a situation where the equilibrium quantity produced and consumed in the market is lower than the socially optimal level, as the market does not account for the additional benefits to society.

The Existence of Spillover Benefits Results in an Equilibrium Quantity