Positive Externality of Consumption
Microeconomics
A diagram illustrating a positive externality of consumption, where the marginal social benefit (MSB) exceeds the marginal private benefit (MPB), leading to underconsumption and welfare loss.
Curves and Elements
demand private
MPB (Demand): Marginal private benefit — the benefit to the consumer without considering positive externalities.
demand social
MSB: Marginal social benefit — the total benefit to society from consumption, including external benefits.
supply
Supply = MSC = MPC: Assumes there are no externalities in production, so private and social costs are equal.
quantity effect
Quantity Effect: The market underconsumes at Qm instead of the socially optimal Qopt.
price effect
Price Effect: The market price (Pm) is lower than the socially optimal price (Popt).
welfare loss
Welfare Loss: The shaded triangle represents the deadweight loss caused by underconsumption.
Positive externalities of consumption occur when consuming a good provides additional benefits to third parties not reflected in the market price.
The free market equilibrium is at Qm and Pm, where consumers only consider their private benefits (MPB).
However, the socially optimal level of consumption is Qopt and price Popt, where marginal social benefit (MSB) equals marginal social cost (MSC).
Because MSB > MPB, the market underconsumes (Qm < Qopt), and not enough resources are allocated to the good.
The shaded triangle represents welfare loss — the value of missed social benefit from underconsumption.
More Microeconomics Diagrams
Explore other diagrams from the same unit to deepen your understanding
The fundamental diagram showing the relationship between demand and supply in a competitive market, determining equilibrium price and quantity.
A basic diagram showing the inverse relationship between price and quantity demanded, illustrating the law of demand.
A basic diagram showing the positive relationship between price and quantity supplied, illustrating the law of supply.
A simple diagram showing four common forms of government intervention in markets: subsidies, taxes, price controls, and direct provision.
A diagram showing how price elasticity of demand changes along a straight-line demand curve, from elastic to unitary elastic to inelastic.
A diagram showing how price elasticity of demand affects total revenue, with total revenue maximized where demand is unitary elastic.