Explain whether the market produces too little, too much, or the right amount of goods with (a) detrimental externalities and (b) public good characteristics.
What will be an ideal response?
For goods with detrimental externalities, the market produces too much; P = private MC, and private MC is below social MC. Using SMC would lead to the socially efficient lower output level. For public good characteristics, the market produces too little. Assuming exclusion of nonpayers is possible, the market will charge a price even though the opportunity cost of an additional user is zero. There will be too few users, from an efficiency standpoint. There will be even greater inefficiency if it is impossible to exclude nonpayers as private firms will be unwilling to provide goods where they cannot prevent free access. (Computer software displays public good difficulties.)
You might also like to view...
Demand is inelastic when a price ________ results in total revenue ________
A) rise; decreasing B) fall; increasing C) rise, increasing D) fall, remaining the same
Of the following, demand is likely to be the most elastic for
A) food. B) cars. C) Sony Blu-ray players. D) personal computers.
In the economic world of production, there are either price makers or price takers. By price takers we mean that
a. firms buy goods as well as sell them, and when they buy goods at whatever price, they play the role of "takers" b. firms take control of their own markets, charging whatever price they think the market will bear c. firms take the market price as given d. firms create the price and consumers either take it or leave it e. the market takes whatever price the firms charge, which is how the downward-sloping demand curve is created
A change in the price of important inputs will change the quantity supplied but will not shift the supply curve
a. True b. False Indicate whether the statement is true or false