If a market is characterized by a positive externality that is not the result of a...

If a market is characterized by a positive externality that is not the result of a technology spillover,

	a.	the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price.
	b.	the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.
	c.	the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.
	d.	the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price.

Expert Solution

Correct answer is (a)

A positive externality exists when an individual making a decision does not receive the full benefit of the decision. The benefit to the individual (also called marginal private benefit) is less than the benefit to society (also called marginal social benefit).

Thus when a positive externality exists in an unregulated market, the marginal private benefit (MPB) curve (the demand curve) of the individual making the decision is less than the marginal social benefit (MSB) curve . With positive externalities, less is produced and consumed than the socially optimal level.

In case of services like education , immunization , unregulated market would lead to an equilibrium price of and equilibrium output of . Equilibrium in unregulated market is at the point of intersection of Marginal private benefit curve and marginal cost curve.

If marginal external benefit of such services is taken into consideration that is benefit to people other than person paying for the services, equilibrium in a regulated market is at the point of intersection of marginal social benefit (MSB) and marginal cost (MC) curve.At this point, output (also called socially efficient output is greater than equilibrium output in unregulated market.Price of service at this point is greater than the price in unregulated market.

Rahul Sunny answered 7 months ago

Consider the market for a good that has a positive externality and that is produced by...

Consider the market for a good that has a positive externality and that is produced by a monopolist. How does the amount produced in the absence of any government policy compare with the amount that would maximize the total social surplus? Identify the total private surplus, external benefits, and total social surplus both at the level of production that occurs without government intervention and at the level of production that maximizes the total social surplus. What is the deadweight loss...

Which of the following describes how an externality can affect a market? A positive externality can...

Which of the following describes how an externality can affect a market? A positive externality can lead to overproduction. A negative externality can lead to over-production. Prices in a competitive market reflect the full costs and benefits of production. The cost of externalities can always be quantified and "internalized" by a party to the transaction. Which of the following is a function of corporate capital budgeting? To evaluate the performance of managers. To encourage managers to consider problems before they...

In the face of a positive externality, a perfectly competitive market produces less than the socially...

In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output. II. If vaccinations create an external marginal benefit, the marginal social benefit of vaccinations will always exceed their private marginal benefit. III. In unregulated markets, negative externalities create deadweight losses, but positive externalities do not. IV. In the face of a negative externality, a perfectly competitive market produces more than the socially optimal quantity of output. A. I, II and...

Question 1 A. Define an externality. B. Distinguish a negative externality from a positive externality, and...

Question 1 A. Define an externality. B. Distinguish a negative externality from a positive externality, and give one example of each. C. What is meant by a production externality as opposed to a consumption externality? D. Give one example of a negative production externality and one of a positive consumption externality.

Question 1 Define an externality. Distinguish a negative externality from a positive externality, and give one...

Question 1 Define an externality. Distinguish a negative externality from a positive externality, and give one example of each. What is meant by a production externality as opposed to a consumption externality? Give one example of a negative production externality and one of a positive consumption externality.

Provide an example of ‘positive’ “externality” and an example of ‘negative’ “externality.” Explain The effect in...

Provide an example of ‘positive’ “externality” and an example of ‘negative’ “externality.” Explain The effect in terms of “market failure” of each example.

Provide an example of positive externality and an example of negative externality that would justify protectionism....

Provide an example of positive externality and an example of negative externality that would justify protectionism. Discuss how protectionism can help reach that goal. If you can think of a better policy to reach the goal desired through protectionism, please explain that policy and why it would be preferable

What are good examples of a positive production externality?

Define an externality ??Cite both a positive and negative externality. Explain why, in each case, the...

Define an externality ??Cite both a positive and negative externality. Explain why, in each case, the market would provide either less than or greater than the efficient quantity. How would you propose correcting for each of the externalities mentioned??

2. Define externality and distinguish between positive and negative externality and their impact on production, using...

2. Define externality and distinguish between positive and negative externality and their impact on production, using examples where possible. 3. How can a government correct for positive and negative externalities?

Question