A positive externality (that has not been internalized) causes the
A) equilibrium quantity to exceed the optimal quantity.
B) equilibrium quantity to equal the optimal quantity.
C) optimal quantity to exceed the equilibrium quantity.
D) equilibrium quantity to be either above or below the optimal quantity.

Question

Quizplus · Accepted Answer

A positive externality means that the social benefit is greater than the private benefit, leading to underproduction in the market. Therefore, the optimal quantity (considering the externality) exceeds the equilibrium quantity.

A Positive Externality (That Has Not Been Internalized) Causes the