A) Using demand and supply diagram, describe and discuss positive externality in production of a product/service. In your discussion, explain why the existence of a positive externality leads to inefficiency.B) Consider your answer in part (a), discuss two methods that the government may use to intervene in the market to eliminate the market inefficiency. In your discussion, explain which method is preferred.

Prices in efficient markets represent all available information about a certain stock or industry at…

Answered: A) Using demand and supply diagram,…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section: Chapter Questions

Problem 8QP

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A) Using demand and supply diagram, describe and discuss positive externality in production of a product/service. In your discussion, explain why the existence of a positive externality leads to inefficiency.
B) Consider your answer in part (a), discuss two methods that the government may use to intervene in the market to eliminate the market inefficiency. In your discussion, explain which method is preferred.

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