Question

Consider the case of a positive externality, like flu shots. Relative to the socially efficient equilibrium, the private market equilibrium price is too _______ and the private market equilibrium quantity is too ________. g

Answer 1

high

low

Step-by-step explanation:

A good has positive externality if the benefits to third parties not involved in production is greater than the cost. 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.

The flu vaccine would be under produced due to the high cost of production. So the equilibrium price would be high and equilibrium quantity would be low