|Posted on April 18, 2014 at 9:40 AM|
Positive externalities exist when the marginal social benefits (MSB) exceed the marginal social costs (MSC). Society is getting too little of the good at too low of a price.
The government can correct a positive externality by offering buyers per-unit subsidies (or incentives) to increase demand so that the MSB=MSC. Another policy option is to offer sellers per-unit subsidies to encourage more production so the MSB=MSC. These policy actions will get rid of the deadweight loss in the market.
AP Microeconomics Unit 4 Role of Government