ECONOMICS
MARKET FAILURES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
The marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good.
|
|
|
The marginal private costs of production plus the cost of the negative externalities associated with that production.
|
|
|
Either A or B
|
|
|
None of the above
|
Detailed explanation-1: -Marginal social costs can be compiled as the total sum of marginal private costs and marginal external costs associated with production. Therefore, to achieve an efficient economy, producers and consumers must analyze the full marginal social costs of consumption and production of each unit.
Detailed explanation-2: -For example if production costs rise from$1, 000 to $1, 050 as one more unit of a good is produced the marginal private cost is $50. b. Marginal social cost (MSC) is the change in society’s total cost brought about by the production of an additional unit of a good or service.
Detailed explanation-3: -Marginal Social Cost Example 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: -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-5: -the marginal social cost of producing a good or service exceeds the private cost. A negative externality occurs when the marginal social cost for the process of production increases the private cost of production.