Explain why the socially optimal output is not always the same as the market output.
What will be an ideal response?
It is only when there are no externalities that the socially optimal output is the same as the market output. If a negative externality exists, the socially optimal output will be less than the market output (which fails to take into account the social costs imposed by the externality). If a positive externality exists, the socially optimal output will be greater than the market output (which fails to take into account the social benefits created by the externality).
You might also like to view...
If the United States were to adopt a policy of free trade with European countries and Japan, this policy would:
a. help the United States and hurt the other countries because the United States has a larger population. b. help all of the countries involved because every country would have a comparative advantage in the production of some goods. c. hurt all of the countries involved because all the countries are capable of producing anything that could be produced in one of the other countries. d. help the United States and hurt the other countries because the United States has more natural resources than the other countries.
A good that is both excludable and rivalrous is a(n):
a. public good. b. club good. c. private good. d. inferior good. e. necessary good.
The excess supply created when the government imposes a price floor
a. shifts the equilibrium price upward to the price ceiling level b. is the difference between the quantity demanded at the old equilibrium price and quantity supplied at the price set by the price ceiling c. is the difference between the quantity demanded at the price set by the price ceiling and quantity supplied at the old equilibrium price d. is the difference between the quantity supplied and the quantity demanded at the price set by the price ceiling e. is the difference between the old equilibrium price and the price set by the price ceiling
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
A. decrease aggregate demand. B. decrease aggregate supply. C. cause a movement along the aggregate demand curve. D. increase aggregate supply.