Final answer:
A product with a positive externality in a free-market economy will be produced at a lower quantity than the socially optimal level, as the market under allocated resources to its production due to unaccounted-for social benefits.
Step-by-step explanation:
In a free-market economy, when a product entails a positive externality — that is, an additional social benefit not reflected in the market price — it tends to be produced at a quantity less than what is socially optimal. This is because the market price does not reflect the external benefits to society that arise from the consumption of the good, leading to underproduction. To reach the level where the private costs and the social benefits are aligned, government intervention, like subsidies, may be necessary to encourage production to the socially optimal level.
This is because the market only considers private costs and benefits and does not take into account the external benefits that spill over to third parties. As a result, the market fails to reach the socially optimal level of production, leading to an underproduction of the product.