The net increase to total surplus when a positive externality is internalized is due to:
A)the transfer of surplus from those affected by the externality to the consumer.
B)the increased number of units bought and sold in the market.
C)the transfer of surplus from the consumer to those affected by the externality.
D)None of these statements is true.

Question

Quizplus · Accepted Answer

Internalizing a positive externality increases the social benefit of the activity, which leads to an increase in the quantity demanded and supplied in the market. The increased demand and supply result in a rise in total surplus, which is the combined benefits received by consumers and producers. Therefore, the net increase in total surplus when a positive externality is internalized is due to an increase in the number of units bought and sold in the market.

The Net Increase to Total Surplus When a Positive Externality