Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It raises the equilibrium price and quantity.
B
It lowers the equilibrium price but raises the equilibrium quantity.
C
It leads to a higher quantity but does not affect the price.
D
It creates a market failure by reducing the quantity supplied.
Understanding the Answer
Let's break down why this is correct
Answer
A positive externality in consumption happens when a person's consumption of a good benefits others who are not directly involved in the transaction. For example, when someone gets vaccinated, they not only protect themselves from illness but also help prevent the spread of disease to others. This extra benefit means that the overall demand for the good is higher than what is reflected in the market price. As a result, the market equilibrium, where supply meets demand, may be lower than it should be, leading to under-consumption of the good. To fix this, governments might encourage consumption through subsidies or public awareness campaigns, which can help shift the market equilibrium to a more desirable level.
Detailed Explanation
A positive externality means that when people consume a good, it benefits others too. Other options are incorrect because Some might think that a positive externality lowers the price; This option suggests that price stays the same.
Key Concepts
Market Equilibrium
Positive Externalities
Market Failures
Topic
Analyzing Market Equilibrium
Difficulty
medium level question
Cognitive Level
understand
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