Explain the differences between external costs, private costs, and social costs and how the presence of external costs leads to market failure.
What will be an ideal response?
Private costs are the costs of an economic activity directly borne by the immediate producer or consumer, while external costs are the cost of a market activity borne by a third party. Social costs are the sum of private costs and external costs. When external costs are present, the market mechanism doesn't allocate resources efficiently. By not conveying the social cost of scarce resources, the market encourages excessive production of the good in question.
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Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, the economic pie will
A) not grow. B) grow by $1 million. C) grow by $2 million. D) shrink by $ million.
Which of the following best describes how economists test the empirical predictions of economic models?
A) Economists survey individuals to learn about how people think through decisions about how much to purchase or to produce. B) Economists collect and analyze real-world observations of people's actions to discern if those actions accord with theories' predictions. C) Based on theories about thought processes, economists seek to determine which thought processes predominate in determining how a person decides what actions to take. D) Recognizing that people always do what they say they will do, economists rely exclusively on information gleaned from polls and surveys conducted by poll takers and market researchers.
One benefit of U.S. society that encouraged entrepreneurship was the inflow of capable immigrants
a. True b. False Indicate whether the statement is true or false
If marginal cost exceeds average total cost:
A. average variable cost increases as output increases. B. average variable cost decreases as output increases. C. average total cost decreases as output increases. D. average fixed cost increases as output increases.