Question

How do externalitiesLOADING... affect​ markets? If a positive externality in consumption is present in a​ market, then

A. the private benefit from consumption will be different than the social benefit from consumption.
B. the private cost of production will be equal to the private benefit from consumption.
C. the social cost of production will be equal to the social benefit from consumption.
D. the private cost of production will be different than the social cost of production.
E. consumer and producer surplus will be maximized.

Answer 1

Answer: If a positive externality in consumption is present in a​ market, then " A. the private benefit from consumption will be different than the social benefit from consumption. "

Explanation: An externality is when the costs or benefits of production or consumption of a particular good or service do not reflect its market price, that is, an externality is an activity that affects others without them paying for them or being compensated.}

Therefore, externalities exist when private costs or benefits are not equal to social costs or benefits.

When social benefits exceed private benefits (positive effects) the company will produce less than socially desirable, because it is receiving benefits lower than the profit provided by its products. On the contrary, when private benefits are higher than social benefits (negative effects), the company will produce more than socially desirable, since it is effectively transferring part of its costs to third parties.