When Positive Externalities Exist in the Consumption of a Good

question 149

Multiple Choice

When positive externalities exist in the consumption of a good, the marginal social benefit:

• A) equals the marginal benefit received by consumers of the good minus the marginal benefit to third parties.
• B) equals the marginal cost of producing the good plus the marginal cost to third parties.
• C) equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties.
• D) could be either greater than or less than the marginal benefit received by consumers of the good depending on the equilibrium price determined in competitive markets.

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Definitions:

Direct Costs

Costs that can be traced directly to a cost object.

Cost Object

Anything for which a separate measurement of cost is desired, including products, services, projects, or customers.

Indirect Costs

Costs that cannot be traced directly to a cost object.

Cost Object

Anything for which a separate measurement of costs is desired, such as products, services, projects, customers, or activities.