If there are external benefits associated with the consumption of a good or service:
A) The private demand curve will overestimate the true demand curve
B) The private demand curve will underestimate the true demand curve
C) Consumers will be willing to pay for all these benefits in private markets
D) The market demand curve will be the vertical summation of the individual demand costs

Question

Quizplus · Accepted Answer

When there are external benefits associated with the consumption of a good or service, the private demand curve will only reflect the benefits that accrue to the individual consumer, and not the benefits that accrue to society as a whole. Therefore, the private demand curve will underestimate the true demand curve since it does not reflect the full value of the benefits of the good or service.

If There Are External Benefits Associated with the Consumption of a Good