What typically occurs in a free market when a positive externality is present?

Multiple choice question for Market. Select an option, then review the explanation below.

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The good or service is consumed less than the socially optimal level.The good or service is consumed more than is efficient.Authorities might impose taxes to reduce output.Reducing production could improve overall societal welfare.

Explanation

When a positive externality exists, the free market tends to result in under-consumption because individuals do not fully account for the benefits to others. This leads to less consumption than is socially optimal. Options B, C, and D describe scenarios more consistent with negative externalities or incorrect policy responses.

Practice related questions from the same subject.

1.Broadcasting firms use satellite TV subscriptions and signal detection tools primarily to combat which issue?
2.Which of the following is a classic example of a public good?
3.Which of the following factors can lead to market failure?
4.When a neighbor burns yard debris and smoke enters your home, what type of externality does this represent?
5.Why is a competitive equilibrium considered Pareto efficient?

What typically occurs in a free market when a positive externality is present?

Explanation

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