ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Private costs of production are more than social benefits.
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Private costs of production are less than social costs.
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An international trade deficit has caused the country to be in debt.
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National companies have borrowed from foreign investors.
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Detailed explanation-1: -An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party. If there are external costs in consuming a good (negative externalities), the social costs will be greater than the private cost. The existence of external costs can lead to market failure.
Detailed explanation-2: -Private costs refer to direct costs to the producer for producing the good or service. Social cost includes these private costs and the additional costs (or external costs) associated with the production of the good which are not accounted for by the free market.
Detailed explanation-3: -Private costs to firms or individuals do not always equate with the total cost to society for a product, service, or activity. The difference between private costs and total costs to society of a product, service, or activity is called an external cost; pollution is an external cost of many products.
Detailed explanation-4: -They exist when the actions of one person or entity affect the existence and well-being of another. In economics, there are four different types of externalities: positive consumption and positive production, and negative consumption and negative production externalities.
Detailed explanation-5: -If social costs exceed private costs, then there are negative production externalities. If social costs are less than private costs, then there are positive production externalities. The cost or benefit of an activity to society as a whole.