When consuming a good creates positive externalities,
a. private demand increases
b. private demand decreases
c. the private demand curve overstates the marginal social benefit of the good
d. the private demand curve understates the marginal social benefit of the good
e. the equilibrium quantity increases without government intervention
D
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The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called
a. the law of absolute advantage. b. the law of comparative advantage. c. the law of production possibilities. d. the exchange maximum principle.
The practice of requiring someone to buy two or more items together, rather than separately, is called
a. resale maintenance. b. product fixing. c. tying. d. free-riding.
Which of the following is NOT correct?
a. Many economist oppose increases in how much people save. b. Saving is an important long-run determinant of a nation's standard of living. c. A change in tax laws that encouraged greater saving would lower interest rates. d. Taxes on interest income can substantially decrease the future value of current saving.
Sketch a typical consumption contract curve in an Edgeworth box for you and her. The two products should be apples and tents. Identify two consumption baskets where you and she are off the contract curve. Label the first point (a) where you value apples much more than she does; label the second point (b) where you value apples much less than she does.
What will be an ideal response?