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

Question

If positive externalities are present in the production of a good, then society will:
A)​produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit.
B)​produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
C)​produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
D)​produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.

Quizplus · Accepted Answer

Positive externalities impose additional benefits to society that are not taken into account by the individual consumers, therefore the marginal social benefit is higher than the marginal private benefit. This means that the private sector will not produce enough of the good to maximize societal benefits, leading to an underallocation of resources.

If Positive Externalities Are Present in the Production of a Good