Discussion
Which one of the following statements is CORRECT in the context of positive consumption externality?
Answer: D
The correct statement is Marginal social benefit is higher than marginal private benefit.
A positive consumption externality arises when one person's consumption benefits others, as with vaccination or education. Society's benefit is the consumer's own benefit plus the benefit to third parties, so \(MSB = MPB + MEB \gt MPB\), and the market under-consumes the good.
Marginal private benefit above marginal social benefit describes a negative consumption externality. The two statements about costs describe production externalities: marginal private cost below marginal social cost is a negative production externality, and marginal social cost below marginal private cost is a positive one.
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