Under a positive externality in consumption, total societal welfare is:

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Prepare for the AP Microeconomics exam on Market Failure and the Role of Government with detailed quizzes featuring multiple-choice questions, hints, and explanations. Master your understanding and ace the test!

Multiple Choice

Under a positive externality in consumption, total societal welfare is:

Explanation:
When a good provides a positive externality in consumption, buyers don’t capture all the benefits that the rest of society gets. This means the private market underproduces relative to the social optimum, so total societal welfare is below what it would be if those external benefits were internalized. If the externality were internalized—say, through a subsidy or other policy that aligns private incentives with social benefits—the quantity would rise to the socially optimal level, increasing overall welfare. So total societal welfare is lower than it would be if the externality were internalized.

When a good provides a positive externality in consumption, buyers don’t capture all the benefits that the rest of society gets. This means the private market underproduces relative to the social optimum, so total societal welfare is below what it would be if those external benefits were internalized. If the externality were internalized—say, through a subsidy or other policy that aligns private incentives with social benefits—the quantity would rise to the socially optimal level, increasing overall welfare. So total societal welfare is lower than it would be if the externality were internalized.

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