DEFINITION AND EXAMPLES 1) Define "positive externality".   2) Give exaples of products that have positive externalities     ON A GRAPH: 1) Show S and D for a product (let's use education) 2) Show MSB when there are NO positive externalities (external or spillover benefits) All who benefit must pay. Show the profit maximizing quantity Show the allocatively efficient quantity (assume S=MSC, i.e. NO negative externalities [no external or spillover costs] ) 3) Show what happens to D if there ARE positive externalities (some people benefit without paying) 4) Show the market P, Q, and efficiency WITH positive externalities: What happens to the profit maximizing P and Q when there are positive externalities ? (Show on graph)   What is the allocatively efficient quantity? (Show on graph) RESULT: 1) Does the market achieve allocative efficiency when there are positive externalities ?   2) Is there an OVERallocation of resources OR an UNDERallocation of resources?   3) Without the government would TOO MUCH or TOO LITTLE be produced?   ROLE OF GOVERNMENT: 1) When positive externalities are associated with a product like education what should the government try to do to the QUANTITY, INCREASE OR DECREASE it?   2) What are the three government policies to correct for markets with positive externalities ? a. b. c. 3) On your graph show the effect of an increase supply on the market for education.   4) What happens to quantity and allocative efficiency when the government subsidizes a product whose production has positive externalities ?