Graph 10-5
-Refer to Graph 10-5.Which of the graphs shown best depicts the case of a positive production externality?
A)panel (a)
B)panel (b)
C)panel (c)
D)panel (d)

Question

Graph 10-5 
-Refer to Graph 10-5.Which of the graphs shown best depicts the case of a positive production externality?
A)panel (a) 
B)panel (b) 
C)panel (c) 
D)panel (d)

Quizplus · Accepted Answer

In panel (c), the social marginal benefit (SMB) curve lies above the private marginal benefit (PMB) curve, indicating that there is a positive production externality. This means that the production of this good generates benefits to the society beyond the ones that the producers and consumers capture, leading to an underproduction in the market (Qm instead of Qs). The other panels do not show the characteristics of a positive production externality.

Graph 10-5 -Refer to Graph 10-5.Which of the Graphs Shown Best Depicts