ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Marginal (private and social) COST (as the SUPPLY curve)
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Marginal (private and social) BENEFIT (as the DEMAND curve)
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Either A or B
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None of the above
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Detailed explanation-1: -The marginal cost curve is the same as the supply curve. The marginal cost curve shows us that every time another unit is produced, the cost of production rises. Thus for a firm, to be ready to sell more, the price must rise. This is what is shown by the supply curve.
Detailed explanation-2: -Accordingly, the marginal cost curve (MC) is that firm’s supply curve for the output; as price of output rises, the firm is willing to produce and sell a greater quantity. Combining the MC curves for all the firms producing the product is the supply curve for the industry.
Detailed explanation-3: -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-4: -When the social cost curve is above a product’s supply curve, a negative externality exists in the market.