Question

A positive externality causes A. the social benefit from consuming the good to be less than the private benefit. B. the social benefit from consuming the good to be greater than the private benefit. C. the social benefit from consuming the good to be the same as the private benefit. D. None of the above.

Answer 1

Answer:

D. None of the above.

Explanation:

By consuming a good consumers get a benefit that is relative and varies according to the needs and value that the consumer gives to that good. Thus, consuming the same product can bring distinct benefits to different consumers. In other words, individual benefit is a subjective criterion.

Positive externality, in turn, means the benefit to all society from an economic activity that positively impacts society. For example, if a software company adopts a tree planting policy for each software unit sold, the social benefit of the tree is a positive externality. This tree will do good for society as a whole and not just for the consumer who bought the product from that company.

Thus, because of the sub-criteria of social and individual benefit criteria, it cannot be stated that any benefit will be greater or less than the other, unless the problem quantifies each benefit.