Question

If a positive externality is to be taken full advantage of the:

a) Government must intervene
b) Market should be left alone
c) Consumers must internalize the externality
d) Producers must bear the cost of the externality

Answer 1

To take full advantage of a positive externality, c. consumers must internalize the externality by recognizing and factoring in the benefits they receive from it when making their decisions.

Step-by-step explanation:

A positive externality occurs when the exchange between a buyer and a seller has a positive impact on a third party who is not involved in the transaction. In order to take full advantage of a positive externality, option c) consumers must internalize the externality. This means that consumers need to recognize and factor in the benefits they receive from the positive externality when making their decisions.

By doing so, they would create a market demand that reflects the true value of the positive externality, leading to an optimal allocation of resources.