Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The equilibrium quantity produced is less than the socially optimal quantity.
B
The market will self-correct to achieve a higher production level.
C
There will be no difference between private and social benefits.
D
Producers will increase output due to higher demand.
Understanding the Answer
Let's break down why this is correct
Answer
In a market with positive externalities, such as education or vaccination, the benefits of these goods extend beyond just the person using them. This means that when the government does not step in, the market may not provide enough of these goods because individuals do not consider the full value they bring to society. For example, if fewer people get vaccinated, not only do those individuals miss out on protection, but the whole community is also at risk of disease. As a result, the outcome is likely to be underproduction of the good, leading to a less healthy society. Without intervention, the market fails to reach an efficient equilibrium that maximizes overall benefits.
Detailed Explanation
When there are positive externalities, like education, the benefits go beyond just the buyer. Other options are incorrect because Some people think the market will fix itself; It's a common mistake to think private and social benefits are the same.
Key Concepts
Market Equilibrium
Positive Externalities
Government Intervention
Topic
Analyzing Market Equilibrium with Externalities
Difficulty
medium level question
Cognitive Level
understand
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