If consuming a good creates a positive externality,_____
A)the marginal private benefits from consuming the good exceed the marginal social benefits.
B)the marginal social benefits from consuming the good exceed the marginal private benefits.
C)the private demand for the good is equal to the marginal social benefit.
D)the private demand for the good is greater than the marginal social benefit.
E)the private demand curve for the good shifts to the right to coincide with the marginal social benefit curve.

Question

Quizplus · Accepted Answer

When consuming a good creates a positive externality, the marginal social benefits (MSB) exceed the marginal private benefits (MPB). This is because the benefits to society as a whole are not fully captured by the individual consumer. Thus, the optimal level of consumption is greater than the level that would be chosen based on MPB alone.

If Consuming a Good Creates a Positive Externality,_____