A Result of a Positive Externality in the Production of a Good

question 158

Multiple Choice

A result of a positive externality in the production of a good is that

• A) the price system will over-allocate resources to the production of that good or service.
• B) the price system will under-allocate resources to the production of that good or service.
• C) the market supply will be too high.
• D) the market demand will be too high.

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Definitions:

Marginal Social Benefit

The extra advantage to society that comes from using an additional unit of a product or service.

Marginal Social Cost

The total cost to society of producing one additional unit of a good, including both private costs and externalities.

Pollution

The presence in or introduction into the environment of substances or things that have harmful or poisonous effects.

Marginal Social Benefit

The supplementary gain for the general population derived from the consumption of one more unit of a good or service.