In a market with positive externalities,
A) the efficient level of production is less than what competition will obtain.
B) the efficient level of production is equal to what competition will obtain.
C) the efficient level of production is more than what competition will obtain.
D) there cannot be an efficient level of production.

Question

Quizplus · Accepted Answer

In a market with positive externalities, there are benefits to society that are not captured by the producers. As a result, the social benefit is greater than the private benefit, and the efficient level of production will be higher than what competition will obtain. Without any intervention, the market will not produce enough to maximize total surplus. Therefore, to achieve efficiency, the government may need to intervene and subsidize production or consumption.

In a Market with Positive Externalities