What can you say about the equilibrium quantity of production and the equilibrium price for a market with external benefits?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThe equilibrium market quantity is too high, and the equilibrium market price is too low, relative to the efficient level of production.bThe equilibrium market quantity is too low, and the equilibrium market price is too high, relative to the efficient level of production.cThe equilibrium market quantity is too low, and the equilibrium market price is too low, relative to the efficient level of production.dThe equilibrium market quantity is too high, and the equilibrium market price is too high, relative to the efficient level of production.
Question
What can you say about the equilibrium quantity of production and the equilibrium price for a market with external benefits?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThe equilibrium market quantity is too high, and the equilibrium market price is too low, relative to the efficient level of production.bThe equilibrium market quantity is too low, and the equilibrium market price is too high, relative to the efficient level of production.cThe equilibrium market quantity is too low, and the equilibrium market price is too low, relative to the efficient level of production.dThe equilibrium market quantity is too high, and the equilibrium market price is too high, relative to the efficient level of production.
Solution 1
The correct answer is b. The equilibrium market quantity is too low, and the equilibrium market price is too high, relative to the efficient level of production.
This is because when there are external benefits in a market, the social benefit is greater than the private benefit. However, without government intervention, producers only consider the private benefit when deciding how much to produce. As a result, the equilibrium quantity of production is lower than the socially efficient level.
Similarly, because the social benefit is not fully accounted for in the market, the equilibrium price is higher than the socially efficient price. This is because the demand curve does not fully reflect the social benefit, which would effectively lower the price if it were considered.
Solution 2
The correct answer is b. The equilibrium market quantity is too low, and the equilibrium market price is too high, relative to the efficient level of production.
This is because when there are external benefits in a market, the social benefit of a good or service is greater than the private benefit. However, the market only takes into account the private benefits when determining the equilibrium price and quantity. As a result, the market under-produces the good or service and charges a higher price than what would be efficient.
Similar Questions
When there is an externality in a market,Group of answer choicesthe externality will move the market to an economically efficient equilibrium.the externality will cause the market price to be less than or greater than the equilibrium price.the government should use price controls to enable the market to reach equilibrium.government intervention may increase economic efficiency.
Consider a good with external costs. Which of the following descriptions characterizes quantities of goods between the market equilibrium quantity and the allocatively efficient quantity?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThese quantities will not be produced by the private market, but the government can add these quantities to production using a subsidy, resulting in higher economic efficiency.bThese quantities will not be produced by the private market, but the government can add these quantities to production using a tax, resulting in higher economic efficiency.cThese quantities will be produced by the private market, but the government can eliminate these quantities from production using a subsidy, resulting in higher economic efficiency.dThese quantities will be produced by the private market, but the government can eliminate these quantities from production using a tax, resulting in higher economic efficiency.
The equilibrium price is the point where:A.the quantity demanded equals the quantity supplied.B.suppliers make a profit.C.increased demand causes prices to rise.D.increased supply causes prices to rise.E.suppliers do not make a profit.
Suppose the production of a good in a competitive market has a negative externality. Which of the following is true? a) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is less than the allocatively efficient output. b) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is at the allocatively efficient output. c) The social marginal cost curve lies to the left of the market supply curve, and the market equilibrium quantity is more than the allocatively efficient output. d) The social marginal cost curve lies to the right of the market supply curve, and the market equilibrium quantity is less than the allocatively efficient output. e) The social marginal cost curve lies to the right of the market supply curve, and the market equilibrium quantity is more than the allocatively efficient output.
The efficient amount of production in a competitive market with external benefits is greater than the equilibrium market quantity.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aTruebFalse
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