Question

When positive externalities exist in the consumption of a good, the marginal social benefit: Multiple Choice could be either greater than or less than the marginal benefit received by consumers of the good depending on the equilibrium price determined in competitive markets. equals the marginal benefit received by consumers of the good minus the marginal benefit to third parties. equals the marginal cost of producing the good plus the marginal cost to third parties. equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties.

Answer 1

Answer: equals the marginal benefit received by consumers of the good plus the marginal benefit to third parties.

Explanation:

An Externality refers to the effect that a third party to a transaction receives even though they were not party to the transaction. When this effect is positive, the effect will be a benefit.

The Marginal social benefit refers to all benefits received from a positive externality which means that this includes the marginal benefits provided to consumers of the good as well as the marginal benefit to third parties.