Question

When there is a positive externality associated with consumption or production: Select one:

a. The market equilibrium quantity will result in over allocation of the good.
b. The market equilibrium quantity will result in under allocation of the good.
c. The market equilibrium quantity will result in efficient allocation of the good.
d. There will be a surplus in production.

Answer 1

b. The market equilibrium quantity will result in under allocation of the good.

Step-by-step explanation:

A positive externality is when there is Social marginal benefit with the production and consumption of a product. Therefore the product does not just benefit an individual consumer but also the society.

This results in under allocation of resources for the production of this good and service and thus the good is generally under produced. This is because the producer down not involve the social benefit in to its pricing and thus charges goods under priced, if they were priced higher there will be more production.

Hope that helps.