ECONOMICS
MARKET FAILURES
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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less than the socially optimal amount of good X
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greater than the socially optimal amount of good X
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the socially optimal amount of good X
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a shortage of good X, unless taxed
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Detailed explanation-1: -When a positive externality is present, the market produces less than the socially optimal quantity of the good or service, since there is a benefit to society that is not captured by the individual.
Detailed explanation-2: -When the production or consumption of a good creates a positive externality, it is deemed a market failure because at the market quantity: The marginal social benefit exceeds the marginal social cost.
Detailed explanation-3: -When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium? Marginal social benefit is less than marginal private cost.
Detailed explanation-4: -When there are positive externalities associated with the consumption of a good, we can expect the market: demand curve to lie below the social demand curve.