Asked by
Jeffrey Molands
on Dec 11, 2024
Verified
Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?
A) Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency.
B) Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency.
C) The competitive private market outcome is consistent with the conditions for economic efficiency.
D) The good will tend to be oversupplied relative to the conditions for economic efficiency.
Economic Efficiency
A state where resources are allocated in a way that maximizes the production of goods and services without wasting any resources.
External Benefit
A benefit that results from an activity but affects uninvolved third parties who did not choose to incur that effect, often leading to market inefficiencies.
- Study the impact of external costs and benefits on the functionality of markets.
Verified Answer
ZN
Learning Objectives
- Study the impact of external costs and benefits on the functionality of markets.