Refer to the above supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be:
A) To the left of line D on the graph
B) To the right of line D on the graph
C) At the position of line D on the graph
D) An upward-sloping line

Question

Refer to the above supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be:
A) To the left of line D on the graph 
B) To the right of line D on the graph 
C) At the position of line D on the graph 
D) An upward-sloping line

Quizplus · Accepted Answer

Positive externalities from the consumption of Product X would result in a socially optimal level of consumption being higher than the market equilibrium level, as the benefits to society are not fully reflected in the market price. Therefore, the socially optimal demand curve would be to the right of the market demand curve D, indicating a higher quantity demanded at each price level.

Refer to the Above Supply and Demand Graph of Product