When a market experiences a positive externality,
A)the demand curve does not reflect the value to society of the good.
B)too much of the good is being produced.
C)the government can internalize the externality by imposing a tax on the product.
D)the private value is greater than the social value.

Question

Quizplus · Accepted Answer

A positive externality means that there are societal benefits associated with the production or consumption of a good that are not fully reflected in the demand curve. Therefore, the demand curve does not reflect the value to society of the good, which can lead to an underproduction of the good if left to the market forces alone.

When a Market Experiences a Positive Externality