Consider a setting in which there is a positive externality,but no negative externality.The market outcome is __________________; government can bring about the ___________________ outcome if it sets a subsidy equal to the __________________.

Question

Quizplus · Accepted Answer

In a situation with a positive externality and no negative externality, the market outcome is inefficient because the social benefits of consumption or production exceed the private benefits, leading to underconsumption or underproduction from a societal perspective. The government can correct this inefficiency and achieve an efficient outcome by setting a subsidy equal to the Marginal External Benefit (MEB), encouraging increased consumption or production to the socially optimal level.

Consider a Setting in Which There Is a Positive Externality,but