Question

If the marginal social benefit of consuming a good or a service exceeds the marginal private cost (A) a negative externality exists.(B) the market achieves economic efficiency.(C) the sum of consumer surplus and producer surplus is maximized.(D) a positive externality exists.

Answer 1

The correct answer is option D.

Step-by-step explanation:

An externality can be defined as a situation in which the benefit or cost resulting from an activity is received or incurred by a third person.

A positive externality means a third person receives the benefits of someone else's activities.

If the marginal social benefit earned from the consumption of a good is higher than the marginal private cost incurred then in that case we can say that a positive externality exists in the market.

People have to pay less but are having greater profit.