Positive externalities create market failure and a role for government.

Question

Quizplus · Accepted Answer

Positive externalities occur when the social benefit of an activity exceeds the private benefit. In such cases, the market fails to allocate resources efficiently, as consumers will only consider the private benefit and not the social benefit. This leads to underproduction compared to the socially optimal level. Government intervention, such as subsidies or provision of public goods, can help to increase the production level to the socially optimal level.

Positive Externalities Create Market Failure and a Role for Government