Social demand equals market demand plus externalities when there are positive external benefits.
If a product yields external benefits,the social demand is greater than the market demand by the amount of the externality.

Question

Quizplus · Accepted Answer

When a product provides positive external benefits, such as reducing pollution or improving public health, the social demand for the product will be higher than the market demand alone because society as a whole benefits from these externalities. Therefore, the formula for calculating social demand includes market demand plus the value of the external benefits, or externality.

Social Demand Equals Market Demand Plus Externalities When There Are