When the consumption of a good creates an external benefit,
A) the marginal social cost curve lies below the marginal private cost curve.
B) the marginal social benefit curve lies above the marginal private benefit curve.
C) the quantity produced in an unregulated, competitive market is greater than the efficient quantity.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When the consumption of a good creates an external benefit, the marginal social benefit curve lies above the marginal private benefit curve, as there is an additional benefit to society beyond what the individual consumer experiences. This results in the market underproducing the good, as the private market does not take into account the positive externality.

When the Consumption of a Good Creates an External Benefit