ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Market Failure
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Externality
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Marginal Private Costs
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Marginal Social Costs
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Detailed explanation-1: -With consumer benefits and producer costs in mind, we can refer to the industry supply and demand curves, respectively, as the marginal social cost (MSC) and marginal social benefit (MSB) curves.
Detailed explanation-2: -Market failure refers to inefficient allocation of resources in the free market that occurs when individuals acting in rational self-interest generate less-than-optimal economic outcomes.
Detailed explanation-3: -At Q1, the Marginal Social Benefit (MSB) is greater than the Marginal Social Cost (MSC). Therefore, in this situation, if we increase output from Q1 to Q2, the addition to social welfare (MSB) is greater than the marginal social cost, therefore net social welfare increases until we get to point Q1 where SMB = SMC.
Detailed explanation-4: -Marginal social benefit (MSB): Marginal social benefit (MSB) is a high utility or satisfaction felt by an individual when they purchase an additional unit of a good or service. Marginal social cost (MSC): Marginal social cost is the added cost spent for producing an extra output of a unit.