Which of the following describes how a positive externality ...

[Jipu 123]

Which of the following describes how a positive externality affects a competitive market?
 
  A) The externality causes a difference between the private benefit from production and the social cost of production.
  B) The externality causes a difference between the private benefit from consumption and the social benefit.
  C) The externality causes a difference between the social cost of production and the social cost of consumption.
  D) The externality causes quantity demanded to exceed quantity supplied.

Question 2

If it turned out that labor supply was relatively elastic then who would bear the greater burden of the payroll tax and why?
 
  What will be an ideal response?

[smrerig]

Answer to Question 1

B

Answer to Question 2

If labor supply is relatively elastic then the burden will fall largely on employers. This is because workers will simply respond by offering a greater percentage less of their labor to the market with any given decline in the wage rate.