Question

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

A. private cost exceeds the private benefit at the private market solution.
B. social value exceeds the private value at the private market solution.
C. private cost exceeds the social benefit at the private market solution.
D. private benefit equals the social benefit at the private market solution.

Answer 1

Answer is option B, i.e. social value exceeds the private value at the private market solution.

Step-by-step explanation:

Whenever there exist positive externalities due to production of various products, the social benefit that is received by those products are greater than the private benefits received, and thus, private market fails to reach the optimal equilibrium stage at private market solution. Therefore, answer is option B.