University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?
A)They are equal.
B)The equilibrium quantity is greater than the socially optimal quantity.
C)The equilibrium quantity is less than the socially optimal quantity.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

Without subsidies, the equilibrium quantity of university research will be determined by the market forces of supply and demand. However, because the positive externality of university research is not taken into account in the market, the equilibrium quantity will be less than the socially optimal quantity. This means that society as a whole would benefit from more university research than what is actually produced in the absence of subsidies.

University Researchers Create a Positive Externality Because What They Discover