If there are external benefits associated with the consumption of a good or serviceMultiple Choicethe private demand curve will overestimate the true demand curve.the private demand curve will underestimate the true demand curve.consumers will be willing to pay for all these benefits in private markets.the market demand curve will be the vertical summation of the individual demand costs.
Question
If there are external benefits associated with the consumption of a good or serviceMultiple Choicethe private demand curve will overestimate the true demand curve.the private demand curve will underestimate the true demand curve.consumers will be willing to pay for all these benefits in private markets.the market demand curve will be the vertical summation of the individual demand costs.
Solution
The correct answer is: the private demand curve will underestimate the true demand curve.
Here's why:
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External benefits are benefits that are enjoyed by third parties, not just the direct consumer of the good or service. These benefits are not reflected in the private demand curve, which only takes into account the benefits to the direct consumer.
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Because of these external benefits, the social value of the good or service is higher than the private value. This means that the true demand (which takes into account both private and external benefits) is higher than the private demand.
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Therefore, the private demand curve, which does not take into account external benefits, underestimates the true demand curve.
Similar Questions
A demand curve is:
Graphically, the market demand curve is: a. Steeper than any individual demand curve that comprises it b. The horizontal sum of individual demand curves c. The vertical sum of individual demand curves d. Greater than the sum of the individual supply curves
A demand curve is derived: Group of answer choicesHolding everything else constant, except for the price of the good itself.Holding everything else constant, except for the consumer’s income and the price of the good.Allowing everything relevant to vary, but only by a small amount.Holding everything constant, except for the price of the good itself and the price of related products.None of the above.
ompensated demand curve?
What happens to the demand curve for a good when some of the alternatives to that good are no longer available on the market?A.It becomes vertical.B.It becomes flatter.C.It becomes steeper.D.It becomes horizontal.
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