If a good that generates positive externalities was produced and priced to take into account these spillover beneﬁts, then its
A) price and output would increase.
B) output would increase, but price would remain constant.
C) price would increase and output would decrease.
D) price would increase, but output would remain constant.

Question

Quizplus · Accepted Answer

If a good that generates positive externalities was priced to take into account these spillover benefits, it is likely that the price will increase, since the cost of production will increase due to the additional costs associated with generating the positive externalities. However, this increase in price is likely to be outweighed by an increase in demand for the good since the positive externalities will increase the value of the good for consumers. This increase in demand will lead to an increase in output, which will further increase the social welfare.

If a Good That Generates Positive Externalities Was Produced and Priced