ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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more than is socially desirable.
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less than is socially desirable.
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the socially optimal equilibrium amount.
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more than the same market would produce in the presence of a negative externality.
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Detailed explanation-1: -When a positive externality is present, the market produces less than the socially optimal quantity of the good or service, since there is a benefit to society that is not captured by the individual.
Detailed explanation-2: -With positive externalities, the buyer does not get all the benefits of the good, resulting in decreased production.
Detailed explanation-3: -In the case of a positive externality, the third party is obtaining benefits from the exchange between a buyer and a seller, but they are not paying for these benefits. If this is the case, markets tend to under-produce output because suppliers do not consider the additional benefits to others.
Detailed explanation-4: -A positive externality is something that enhances society as a whole. It results from an economic transaction that has positive external effects on others not party to the transaction. One example of a positive externality is the market for education.
Detailed explanation-5: -Externalities cause markets to be inefficient, and fail to maximize total surplus. Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a smaller quantity than is socially desirable.