The private marginal benefit for commodity X is given by 15 - X, where X is the number of units consumed. The private marginal cost of producing X is constant at 10. In the absence of any government intervention, how much X is produced? What is the gain to society involved in moving from the inefficient to the efficient level of production?
What will be an ideal response?
Without intervention, optimal will be where PMB = 0. X = 15. The efficient level is X = 5. The
area beneath the PMB is gained. Gain = 25.
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The federal government buys $10 million worth of aircraft engines from General Motors. If the MPC is .80 what will be the impact on aggregate demand, other things being equal? a. Aggregate demand will increase $8 million
b. Aggregate demand will increase $12.5 million. c. Aggregate demand will increase $18 million. d. Aggregate demand will increase $50 million.
Which of the following describes the vicious circle of poverty?
A. Government spending for public goods is inflationary and this undermines incentives to save and invest. B. Higher incomes increase consumption at the expense of capital accumulation, which causes income to fall. C. Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes. D. A growing national income increases the demand for money, which increases the interest rate and reduces investment.