When society receives more benefits from a good than the individuals who consume the good,_____
A)the marginal social benefit from the good is less than the marginal social cost.
B)the average social benefit is less than the average social cost.
C)the property rights on the good have been well defined.
D)the production of the good generates a positive externality.
E)the production of the good generates a negative externality.

Question

Quizplus · Accepted Answer

When society receives more benefits from a good than the individuals who consume the good, it means that the production of the good generates a positive externality. Positive externalities occur when the benefits of a good spill over to third parties who are not directly involved in the consumption or production of the good. In this case, the marginal social benefit from the good is greater than the marginal private benefit, and the average social benefit is greater than the average private benefit. This is a market failure, and may require government intervention to correct.

When Society Receives More Benefits from a Good Than the Individuals