Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.Then the market price of roses:
A)is less than the marginal social benefit of roses.
B)is more than the marginal social benefit of roses.
C)equals the marginal social benefit of roses.
D)may be more than, less than, or equal to the marginal social benefit of roses.

Question

Quizplus · Accepted Answer

Since there is a positive externality, the marginal social benefit of roses includes the enjoyment that travelers get from the scenic rural vistas. However, the market price of roses only reflects the private benefit to the producers and consumers, which does not include the positive externality. Therefore, the market price is less than the marginal social benefit, and the best choice is A.

Suppose the Production of Roses Generates a Positive Externality in That