Question

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas where roses are grown. Then the market price of roses: a. is less than the marginal social benefit of roses. b. is more than the marginal social benefit of roses. C. equals the marginal social benefit of roses. d. is less than the marginal social cost of roses. e. is greater than the marginal social cost of roses.

Answer 1

is less than the marginal social benefit of roses

Step-by-step explanation:

A good has positive externality if the benefits to third parties not involved in production is greater than the cost. A good has positive externality if the price of the good is less than its marginal social benefit. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced. Government can encourage the production of activities that generate positive externality by granting subsidies.

A good has negative externality if the price of the good is less than the marginal social cost of the good