The production of a good with positive externalities will increase when:

Question

Quizplus · Accepted Answer

When there are positive externalities associated with a good, the social marginal benefit is higher than the private marginal benefit. This means that the market equilibrium will produce a lower quantity than is socially optimum, leading to an underproduction of the good. By providing a subsidy, the government can reduce the marginal cost of production for the producer and encourage them to increase their output towards the socially optimum level.

The Production of a Good with Positive Externalities Will Increase