ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Marginal social benefit is less than marginal private cost.
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Marginal social benefit is greater than marginal private benefit.
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Marginal social cost is greater than marginal social benefit.
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Marginal social cost is less than marginal private benefit.
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Detailed explanation-1: -When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium? Marginal social benefit is less than marginal private cost.
Detailed explanation-2: -Positive externalities of consumption is when an individual or firm consumes a good or service, and this action provides a benefit to an unrelated third party.
Detailed explanation-3: -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-4: -The best example of a positive externality is: roller coaster rides.
Detailed explanation-5: -Answer and Explanation: The correct answer is: a.) In the case of positive externalities, a private market will produce too little of a good compared to the socially efficient level of output. With the availability of positive externality, the socially efficient output is produced too little.