Chapter 75, Problem 3MCQ

To determine

The correct option for positive externality

Answer to Problem 3MCQ

From the available options, the correct option is MSB>MPB.

Explanation of Solution

In positive externality marginal social benefit would be greater than the marginal private benefit because the consumption or production of an individual provides benefit to the whole society such as planting trees that improves the quality of air. Therefore, other all options are incorrect and correct option is c because when society gains profit or benefit then, marginal private benefit and marginal social cost cannot be higher than marginal social benefit.

Therefore, MSB>MPB is correct.

Economics Concept Introduction

Introduction: When the production or consumption of a product benefits a third party but it is not directly considered in the market transaction as it indirectly involves in the transactions or indirectly provides benefit to the society then it is a positive externality such as education which directly benefits the individual but also provides benefits to society indirectly.