Quantity Refer to Exhibit 31-2. This graph represents a positive externality sit
ID: 1128661 • Letter: Q
Question
Quantity Refer to Exhibit 31-2. This graph represents a positive externality situation Given this, which of the two curves, X or Y, represents marginal social benefits and why? Curve X, because if there is a positive externality, negative external benefits are associated with it social costs external benefits private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve Curve X, because if there is a positive externality, external benefits are associated with it: social benefits external benefits+ private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve. Curve Y, because if there is a positive externality, external costs are associated with it: social benefits external costs+ private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit cost curve Curve Y, because if there is a positive externality, external benefits are associated with it social benefits . external benefits+ private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit curveExplanation / Answer
A positive externality situation is a situation in which an economic transaction creates benefits for third parties (not associated with said economic transaction) as well.
This implies that apart from private benefits, external benefits are also being created.
Social benefit is sum total of private benefit and external benefit.
This means social benefits would be greater than the private benefits.
Due to this, marginal social benefit curve will lie above the marginal private benefit curve.
The given graph shows that curve Y lies above.
So, curve Y represents marginal social benefits.
The correct answer is the option (4).