Graph 10-4

-Refer to Graph 10-4. Which of the graphs shown best depicts the case of a positive consumption externality?
A) panel (a)
B) panel (b)
C) panel (c)
D) panel (d)

Question

Graph 10-4
 
-Refer to Graph 10-4. Which of the graphs shown best depicts the case of a positive consumption externality?
A) panel (a) 
B) panel (b) 
C) panel (c) 
D) panel (d)

Quizplus · Accepted Answer

Panel (b) shows a positive consumption externality, where the social benefit of consumption (SB) is greater than the private benefit of consumption (PB). This is indicated by the SB curve being above the demand curve, while the MB curve (marginal benefit) is still upward sloping. This means that the market quantity (Qm) is less than the socially optimal quantity (Qopt), leading to a deadweight loss (DWL).

Graph 10-4 -Refer to Graph 10-4. Which of the Graphs Shown Best