Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be 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

When a positive externality exists, the social value of a good exceeds the private value. This means the socially optimal quantity is greater than the equilibrium quantity, because the market does not account for the external benefits.

Suppose That Cookie Producers Create a Positive Externality Equal to $2