Question

Which one of the following statements is CORRECT in the context of positive consumption externality?

• A. Marginal private benefit is higher than marginal social benefit.
• B. Marginal social cost is lower than marginal private cost.
• C. Marginal private cost is lower than marginal social cost.
• D. Marginal social benefit is higher than marginal private benefit.

Hint:

For positive externalities: \[ MSB > MPB \] because society receives additional benefits beyond the consumer’s private gain.

Answer 1

The Correct Option is D

Step 1: Picture a positive consumption externality.
When you consume something like a vaccine, you gain, but people around you also gain from less spread of disease. So consumption spills out an extra benefit.

Step 2: Name the two benefits.
$MPB$ is the benefit to the consumer alone. $MSB$ is that benefit plus the extra benefit to society.

Step 3: Compare them.
Since society gets a bonus on top,
\[ MSB=MPB+\text{external benefit}\;\Rightarrow\; MSB>MPB \]

Step 4: Match the options.
The options about costs do not fit a benefit story, and private benefit is not the larger one here. The right statement is that social benefit beats private benefit.
\[ \boxed{\text{Marginal social benefit is higher than marginal private benefit}} \]