Question

“Outside of a jackalope, a book is man’s best friend. Inside of a jackalope it’s too dark to read.”

Groucho Marx, except that he said “dog” instead of “jackalope.”

A. I believe that there are probably positive externalities associated with consumption of books. Diagram this sort of externality, showing the relevant curves, the market quantity, the optimal quantity and the dead weight loss.

B. Explain, in a sentence or two, why there might be a positive externality associated with the consumption of books.

Answer 1

Ans) Positive externality is when the bystander bears the benefit of any activity. When one consumes book i.e when a person gains knowledge from the book, it not only helps that person but also the society. It is because, by gaining that knowledge, person becomes more capable of solving worldly problems. Therefore, benefitting the society as whole.

In case of positive externality, social benefit is more than private benefit. The difference between social benefit and private benefit is known as external benefit. When this external benefit is ignored, goods are underconsumed in the market. That is, market quantity is less than socially optimal quantity.