Question

If there are positive externalities involved with the delivery or consumption of a product, the level of output will be:a. more than the efficient amount of production.b. equal to the efficient amount of production.c. less than the efficient amount of production.d. dictated by public demand.e. decided by the imposition of government quota.

Answer 1

If there are positive externalities involved with the delivery or consumption of a product, the level of output will be less than the efficient amount of production.

Answer: Option C

Explanation:

Externality means the result or the consequences of the activities which affect some third parties also. But this does not get reflected in the market prices. Positive externality means that the third party gains benefits from the activities related to externalities.

But in this case there is always under production that is the production which is less than efficient amount of production. The reason for this is that the producers of these goods can not capture the extra value of the goods that the third parties get in the form of the prices of that good.