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In: Economics

If there is a positive externality, use a diagram to explain why there may be no...

If there is a positive externality, use a diagram to explain why there may be no efficiency loss due to the insurance price subsidy.

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Expert Solution

A positive externality imposes a benefit on a large sphere of people beyond those associated with the transaction. When there is a positive externality in the market for a good, private benefit is always less than social benefit so that private outcome is a socially inefficeint one. Hence to produce more the marginal social benefit should be equated against marginal cost.

Rahul Sunny answered 2 years ago
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