Final answer:
The marginal private benefit of a product with an external benefit is lower than its marginal social benefit, as MSB includes both private and positive external effects on society which are not accounted for in the MPB.
Step-by-step explanation:
When a product has an external benefit, its marginal private benefit (MPB) is less than its marginal social benefit (MSB). This situation occurs because external benefits are positive externalities that are not reflected in the private benefits to the consumer or producer, meaning they accrue to other parties or society at large.
The marginal private benefit of a good is the additional benefit received by consumers for consuming one more unit of the good. However, when external benefits are present, such as with fuel-efficient cars reducing pollution, society receives additional benefits that are not captured by the market demand curve. This means the MPB does not account for the positive effects on third parties, whereas the MSB includes both the private benefits and the external benefits to society.
In the case where P > MC (Price is greater than Marginal Cost), it indicates that the benefits from producing more of a good exceed the costs, leading to a gain for society. Hence, this condition favors increased production.