Chapter 6.1

Question 1

What happens when there is a positive production externality?

Answer 1

Too few resources are allocated to the good’s production and too little is produced

Question 2

Solutions for correcting positive production externalities

Answer 2

Direct government provision
Subsidies

Question 3

What does the correction of positive production externalities do?

Answer 3

Shifts the MPC curve downwards towards the MSC curve through direct government provision or subsidies