Multiple Choice
If the marginal cost (MC) of polluting decreases, which of the following is most likely to occur in the market for the polluting good?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following statements is true about measuring positive externalities of education?
A
Positive externalities of education decrease the social benefit compared to the private benefit.
B
Positive externalities of education are fully reflected in the private costs paid by students.
C
Measuring positive externalities of education only requires analyzing individual wage increases.
D
Positive externalities of education are benefits to society that are not captured by the private market demand for education.
Verified step by step guidance1
Understand the concept of positive externalities: These occur when the consumption or production of a good causes a benefit to a third party that is not reflected in the market price.
Recognize that in the case of education, positive externalities mean that the social benefit of education is greater than the private benefit received by the individual student.
Note that private costs and benefits reflect only the individual's perspective, while social costs and benefits include external effects on society.
Realize that measuring positive externalities cannot rely solely on individual wage increases because it ignores broader societal benefits such as reduced crime rates, improved civic participation, and higher productivity.
Conclude that the correct understanding is that positive externalities of education represent additional benefits to society beyond what is captured by private market demand, meaning social benefits exceed private benefits.
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