Question

If the marginal social benefit (MSB) is greater than the marginal private benefit, the market outcome is___________.A. efficient, producing the appropriate amount of the good.B. inefficient, producing too much of the good.C. inefficient, producing too little of the good.D. efficient, implying that there is no role for government involvement.

Answer 1

Answer:

The correct answer is option B.

Explanation:

If the marginal private benefit is greater than the marginal private benefit, this indicates there is a positive externality in the market. The production of the good in this situation is inefficient.  

The government needs to intervene and reduce production as too much good is being produced.  

The government can correct the externalities by providing subsidies or grants to the producers.