Exhibit 31-2 -Refer to Exhibit 31-2.This Graph Represents a Positive Externality Situation.Given

Multiple Choice

Exhibit 31-2

-Refer to Exhibit 31-2.This graph represents a positive externality situation.Given this,which of the two curves,X or Y,represents marginal social benefits and why?

A) Curve X, because if there is a positive externality, negative external benefits are associated with it: social costs external benefits - private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.
B) Curve X, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie below the marginal private benefit curve.
C) Curve Y, because if there is a positive externality, external costs are associated with it: social benefits = external costs + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit cost curve.
D) Curve Y, because if there is a positive externality, external benefits are associated with it: social benefits = external benefits + private benefits, therefore the marginal social benefit curve must lie above the marginal private benefit curve.