If a production process creates positive externalities,a competitive market produces too few positive externalities because the producer
A) does not pay all the costs of the externalities.
B) does not receive compensation for the externalities.
C) Both A and B.
D) None of the above.

Question

Quizplus · Accepted Answer

When a production process creates positive externalities, the issue is that the producer does not receive compensation for the external benefits provided to others. This lack of compensation means that the market will produce less of the good or service than is socially optimal, as the producer's private benefits do not include the external benefits.

If a Production Process Creates Positive Externalities,a Competitive Market Produces