When a positive externality is present in a market,total surplus is:
A)higher when buyers internalize the externality.
B)lower when buyers internalize the externality.
C)higher when buyers only consider private benefits.
D)Any of these statements could be true.

Question

Quizplus · Accepted Answer

When buyers internalize a positive externality, such as the benefits that come from volunteering or using public transportation, they will be willing to pay a higher price for the good or service. This will increase the equilibrium price and quantity, leading to a higher total surplus. On the other hand, if buyers only consider private benefits, they may undervalue the good or service and not be willing to pay as much, resulting in a lower total surplus. Therefore, A is the correct choice.

When a Positive Externality Is Present in a Market,total Surplus