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AP® Microeconomics

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Externalities: Effect on Price and Quantity

APMICR-IVVHKX

When the production of a good results in positive externalities, how do the market equilibrium price and quantity of the good compare to the socially optimal price and quantity?

A

The market equilibrium price and quantity will both be greater than the socially optimal price and quantity.

B

The market equilibrium price and quantity and price will both be lower than the socially optimal price and quantity.

C

The market equilibrium price will be higher than the socially optimal price and the market equilibrium quantity will be lower than the socially equilibrium quantity.

D

The market equilibrium price will be lower than the socially optimal price and the market equilibrium quantity will be higher than the socially equilibrium quantity.

E

The market equilibrium price and quantity will be equal to the socially equilibrium price and quantity.