External Benefits Value I MSB When there are positive externalities(the benefits of repairs to neighbors), marginal social benefits A self-interested home owner MSB are higher that invests q, in repairs. The marginal benefits D efficient level of repairs g* is higher. The higher price P discourages repair. P1 MC Is research and development MEB discouraged by positive externalities Repair Level Chapter 18 Slide 10Chapter 18 Slide 10 P1 MC External Benefits Repair Level Value D Is research and development discouraged by positive externalities? q1 MSB MEB When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits MSB are higher than marginal benefits D. q* P* A self-interested home owner invests q1 in repairs. The efficient level of repairs q* is higher. The higher price P1 discourages repair