Society\'s net benefits are maximized when price and quantity in the market are

Question

Society's net benefits are maximized when price and quantity in the market are A. $16 and 10 B. $8 and 14 C. $12 and 10 D. $12 and 14 E. $8 and 10 12. If this industry starts as perfectly competitive and then becomes a monopoly, the deadweight loss to is equal to area A. ABC B. ADC C. BDEC D. ADEC E. None of the above 13. Miller argues in the "Sex, Booze and Drugs" reading that a predictable effect of declaring a illegal is that: A. producers of the good or service will lobby hard to undue the regulation. B. more of the illegal good will consistently be bought and sold. C. it will become impossible for consumers to purchase. D. the quality and reliability of the good or service will be reduced. 14. Everything thing else being equal, a family's optimal level of crime avoidance would A. An elderly family member, the father's uncle, passed away at age 94. B. The family moved to a new city, living in a neighborhood that was very similar to neighborhood C. The family wealth rose significantly because of a large inheritance D. The family's young children went away to summer camp

Explanation / Answer

11) In the presence of externality, the cost of the externality created by the industry is usually not internalized by the firms. From society’s perspective, the net benefits are not maximized unless the firms incorporate this internal cost in their cost analysis. Hence the socially efficient level of output is the one that equilibrates social marginal benefits (MSB or the market demand demand) to the marginal cost to the society (MSC)

This occurs at point C where the equilibrium price is $12 and societal output is 14 units. So the correct option is D.

12) For a monopolist, the equilibrium quantity is profit maximizing at which MR = MSC. So the monopolist produces 10 units at a price of $16. The deadweight loss is the area of surplus foregone in comparison to a perfectly competitive production point at C. So the DWL is the area of the region ADC. So the correct option is B

13) Miller argues that making drugs illegal will attract more new sellers, probably criminals to this business who are willing to add more to it. So illegal drugs will lead to more illegal drugs being brought, bought and sold. So the correct option is B

14) When the wealth is increased, crime avoidance is less since the financial constraint is removed and there are less chances of the members being engaged in crime.

So the correct option is C

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