If positive externalities are present in the production of a good, then society will:
A)produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit.
B)produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
C)produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
D)produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.
E)always produce the efficient quantity of output.

Question

Quizplus · Accepted Answer

If positive externalities are present in the production of a good, then the marginal social benefit (MSB) will be greater than the marginal private benefit (MPB) to consumers. This means that private producers will not take into account the full benefits of their production and may produce less than the socially optimal quantity. Therefore, the production level will be too low, and society will produce too little of the good. Option D best describes this scenario.

If Positive Externalities Are Present in the Production of a Good