ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good.
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The marginal private costs of production plus the cost of the negative externalities associated with that production.
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Either A or B
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None of the above
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Detailed explanation-1: -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.
Detailed explanation-2: -Marginal social benefit (MSB) is the marginal benefit enjoyed by society-by the consumers of a good or service (marginal private benefit) and by everyone else who benefits from it (the marginal external benefit). That is, MSB= MB + Marginal external benifit.
Detailed explanation-3: -Marginal benefit is the maximum amount of money a consumer is willing to pay for an additional good or service. The consumer’s satisfaction tends to decrease as consumption increases. Marginal cost is the change in cost when an additional unit of a good or service is produced.
Detailed explanation-4: -Marginal Social Benefit of a Public Good The greater the quantity of a good, the larger is a person’s total benefit. Marginal benefit is the increase in total benefit that results from a one-unit increase in the quantity of a good. The marginal benefit of a public good diminishes with the quantity of the good provided.
Detailed explanation-5: -For example: Let’s say a pair of pants is being sold for $50. However, you’re willing to pay $60 for the pair. The marginal benefit in this instance is $60 because that’s the most you’re willing to pay for that pair of pants. This means the marginal benefit is $10 higher than the actual selling price.