If positive externalities are present in the production of a good, society will:
A)produce too much of the good because the marginal private benefit to consumers is less than the marginal social benefit.
B)produce too little of the good because the marginal private benefit to consumers is greater than the marginal social benefit.
C)produce too much of the good because the marginal private benefit to consumers is greater than the marginal social benefit.
D)produce too little of the good because the marginal private benefit to consumers is less than the marginal social benefit.
E)produce too much of the good because of the free-rider problem.

Question

Quizplus · Accepted Answer

Positive externalities create a situation where the marginal social benefit is greater than the marginal private benefit. This means that individuals will only consider their own benefit and will not account for the benefits that society as a whole receives. Hence, the market will produce too little of the good.

If Positive Externalities Are Present in the Production of a Good