When positive externalities exist in a market,if it is internalized:
A)those who interact in the market will lose surplus.
B)those who interact in the market will gain surplus.
C)those who do not interact in the market,but are affected by the externality,will gain surplus.
D)None of these statements is necessarily true.

Question

Quizplus · Accepted Answer

When positive externalities exist in a market, the social benefit is greater than the private benefit, which means that there is an underallocation of resources. Internalizing the externality will lead to an increase in the total surplus of the market. Therefore, those who interact in the market will gain surplus.

When Positive Externalities Exist in a Market,if It Is Internalized