ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a misallocation of resources.
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positive externalities in production.
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negative externalities in consumption.
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diseconomies of scale in production.
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Detailed explanation-1: -At the point where quantity demanded and quantity supplied are equal, marginal social cost exceeds marginal social benefit and too much of the good is produced. Since marginal social cost exceeds marginal social benefit, a net social loss is generated.
Detailed explanation-2: -If the plant’s marginal social costs are higher than the plant’s marginal private costs, the marginal external cost is positive and results in a negative externality, meaning it produces a negative effect on the environment.
Detailed explanation-3: -If social costs exceed private costs, then there are negative production externalities.
Detailed explanation-4: -Marginal social benefit is the satisfaction experienced by consumers of a specific good plus or minus the overall environmental and social costs or benefits. For example, if positive externalities of consumption are present, marginal social benefits are larger than marginal private benefits.