Question:
Which one of the following statements is CORRECT in the context of positive consumption externality?
Which one of the following statements is CORRECT in the context of positive consumption externality?
Show Hint
For positive externalities:
\[
MSB > MPB
\]
because society receives additional benefits beyond the consumerβs private gain.
Updated On: Jun 5, 2026
- Marginal private benefit is higher than marginal social benefit.
- Marginal social cost is lower than marginal private cost.
- Marginal private cost is lower than marginal social cost.
- Marginal social benefit is higher than marginal private benefit.
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The Correct Option is D
Solution and Explanation
Step 1: Understand positive consumption externality.
A positive consumption externality occurs when consumption of a good provides benefits not only to the consumer but also to other members of society.
Examples include vaccination, education, and public health measures.
Step 2: Define marginal private benefit and marginal social benefit.
\[ MPB=\text{Marginal Private Benefit} \] It measures the benefit received directly by the consumer.
\[ MSB=\text{Marginal Social Benefit} \] It includes both private benefit and external benefit to society.
Step 3: Relationship under positive externality.
Since society gains additional benefits from consumption, we have
\[ MSB = MPB + \text{External Benefit} \]
Therefore,
\[ MSB > MPB \]
Step 4: Analyze the options.
(A) Incorrect, because private benefit is not greater than social benefit in case of positive externality.
(B) Incorrect, because the question concerns consumption externality related to benefits, not costs.
(C) Incorrect, because it describes negative externality in production.
(D) Correct, because marginal social benefit exceeds marginal private benefit under positive consumption externality.
Step 5: Final conclusion.
Hence, the correct statement is
\[ \boxed{\text{Marginal social benefit is higher than marginal private benefit}} \]
Therefore, the correct option is (D).
A positive consumption externality occurs when consumption of a good provides benefits not only to the consumer but also to other members of society.
Examples include vaccination, education, and public health measures.
Step 2: Define marginal private benefit and marginal social benefit.
\[ MPB=\text{Marginal Private Benefit} \] It measures the benefit received directly by the consumer.
\[ MSB=\text{Marginal Social Benefit} \] It includes both private benefit and external benefit to society.
Step 3: Relationship under positive externality.
Since society gains additional benefits from consumption, we have
\[ MSB = MPB + \text{External Benefit} \]
Therefore,
\[ MSB > MPB \]
Step 4: Analyze the options.
(A) Incorrect, because private benefit is not greater than social benefit in case of positive externality.
(B) Incorrect, because the question concerns consumption externality related to benefits, not costs.
(C) Incorrect, because it describes negative externality in production.
(D) Correct, because marginal social benefit exceeds marginal private benefit under positive consumption externality.
Step 5: Final conclusion.
Hence, the correct statement is
\[ \boxed{\text{Marginal social benefit is higher than marginal private benefit}} \]
Therefore, the correct option is (D).
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