Graphically depict market failure in the case where social costs exceed private costs, and show where social welfare is maximized.
What will be an ideal response?
See Figure 28.2 in your text. Production decisions based on private costs alone lead to overproduction of the good in question. Social welfare is maximized by equating social marginal cost with marginal revenue.
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If an individual borrows $100, and pays back $100 after a year to settle his loan, it implies that the rate of interest is:
A) 0 %. B) 100%. C) 1%. D) 10%.
In the figure above, when disposable income equals $10 trillion,
A) consumption expenditure is greater than disposable income but it is not possible to determine if consumers are saving or dissaving. B) consumption expenditure is less than disposable income, so consumers are dissaving. C) consumption expenditure is less than disposable income, so consumers are saving. D) consumption expenditure is greater than disposable income, so consumers are saving. E) consumption expenditure is greater than disposable income, so consumers are dissaving.
Scarcity can be eliminated by
A) abolishing competition. B) abolishing capitalism. C) abolishing money. D) all of the above. E) none of the above.
What does it mean when the demand for a product is inelastic?
a. People will not buy any of the product when the price goes up. b. A price increase does not have a significant impact on buying habits. c. Customers are sensitive to the price of the product. d. There are very few satisfactory substitutes for the product.