When there is a positive externality,
A) the private benefit received by consumers is greater than the external benefit.
B) the social benefit received by consumers is greater than the private benefit.
C) the private benefit received by consumers is greater than the private cost.
D) the private benefit received by consumers is greater than the social benefit.

Question

Quizplus · Accepted Answer

In the case of a positive externality, there is a benefit that is enjoyed by individuals who are not directly involved in the market transaction. Therefore, the social benefit is greater than the private benefit. For example, if someone installs solar panels on their house, they may receive a private benefit of lower electricity bills. However, there is also a social benefit of reduced pollution and carbon emissions, which is enjoyed by society as a whole. The social benefit is greater than the private benefit in this case.

When There Is a Positive Externality