To maximize social welfare when there are no externalities, __________ must be e
ID: 1169202 • Letter: T
Question
To maximize social welfare when there are no externalities, __________ must be equal to __________.
a. private costs; social costs
b. private costs; social benefits
c. marginal private costs; marginal private benefits
d. social benefits; private benefits
e. Answers a, c, and d are correct.
Which type of approach does the Environmental Protection Agency take toward resolving externality problems?
A.public sector
b. Coasian bargaining
c.military action
D. Both a and b are correct.
E. None of the answers is correct.
In private equilibrium, a positive production externality will lead to __________; a negative consumption externality will lead to ___________.
A. the socially efficient amount of production; "too much" consumption
b. underproduction; "too little" consumption
c. overproduction; "too little" consumption
d. underproduction; "too much" consumption
e. overproduction; "too much" consumption
Explanation / Answer
1. (c) Social welfare is maximised when each firm in an economy maximises its total market value. marginal private costs = marginal private benefits
2. (a) The Environmental Protection Agency provides public-sector solutions (price policy and quantity control) toward resolving externality problems.
To maximize social welfare when there are no externalities
3. (d) a positive production externality(Honey producers have a positive externality from bees) will lead to under production: a negative consumption externality(Smoking for those of us that do not smoke) will lead to "too much" consumption.
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