Figure: Positive Externality

question 228

Essay

Figure: Positive Externality
The figure shows the market for a good that when consumed causes an external benefit. Suppose the government decides to begin issuing a subsidy to the consumers of the good. Using the information provided in the figure, answer the following questions.
a. What is the initial market quantity in this market?
b. What is the social benefit of the product?
c. When the consumers of the product are subsidized, what is the dollar amount of deadweight loss that is removed from the market?
d. What is the new efficient quantity in this market after the subsidy has been allocated?

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