Question

group of sovereign nations continues to hold the market output at QC. Now suppose scientists discover that the output of this cartel has strong positive externalities for society.

  • Define the term “positive externality.”  Explain the impact of this positive externality on the market P and Q.
  • Graphically, what is the Socially Optimal amount of Q? (Use QSOC to indicate this quantity).  Explain how you arrived at this output and compare this output to both perfectly competitive market output Q0 and the cartel output QC.
  • Graphically indicate the size of deadweight loss (if there is any DWL), comparing the cartel-determined level of output and the socially optimal output that takes into account positive externalities.

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