How does a positive externality in consumption reduce economic efficiency?
What will be an ideal response?
If there is a positive externality in consumption, people not directly involved in the consumption of the product capture some of the external benefits of the product being consumed. Since the consumer does not reap the entire benefit of consumption, the consumer's marginal benefit of consumption (the demand) is reduced. This results in the consumer consuming less of the product, leading to a market equilibrium which is less than the efficient equilibrium and resulting in a deadweight loss.
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In 2012, which of the following countries had the highest share of investment spending in GDP?
A) China B) France C) the United States D) Germany
Which of the following is NOT a major argument for restricting international trade?
A) the national security argument B) the promotion of dumping in America C) the infant industry argument D) saves U.S. jobs argument E) the prevention of dumping argument
The unemployment caused by minimum wage would be larger if
A) both labor demand and labor supply are more elastic. B) both labor demand and labor supply are more inelastic. C) minimum wage is set equal to the equilibrium wage rate. D) minimum wage is set below the equilibrium wage rate. E) both labor demand and labor supply are perfectly inelastic.
Jon is risk averse. When he buys insurance against all risks, then
A) he knows his wealth with certainty. B) his utility exceeds his expected utility. C) his wealth exceeds his expected wealth. D) all of the above.