National defense is a good viewed to have significant positive externalities. Which of the following is...
National defense is a good viewed to have significant positive externalities. Which of the following is false concerning goods with positive externalities?
The quantity of national defense produced naturally in a free market would be less than the efficient quantity
The government can increase efficiency by subsidizing or producing national defense themselves
The private benefits of producing national defense are greater than the social benefits
Homework Answers
A good is said to have positive externality when the social benefit from the good is greater than the private benefit.
As social benefit is greater than the private benefit, the socially optimal quantity of good with positive externality is greater than the free market quantity.
In such scenario, government resort to subsidies to increase production of such good to attain socially optimal level.
So,
The false statement concerning goods with positive externalities is that the private benefits of producing national defense are greater than the social benefits.
Hence, the correct answer is the option (3).
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