Question

internalizing a positive externality will cause the demand curve to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged.

Answer 1

Internalizing a positive externality will result in the demand curve to 'shift to the right'. Therefore, option A 'shift to the right' is the correct answer.

A positive externality exists if the consumption and production of a service or good benefits a third party that is not directly involved in the market transactions.  When a company internalizes a positive externality, then the demand for its products and services would increase. Since this improves the delivery of goods and services with improved quality to consumers without having any direct motives to increase the monetary income of the company. This is clearly a positive boosting factor for the company, which in turn, will increase the demand for the company's goods and services and shift the curve to the right.

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