How does a positive externality in consumption reduce economic efficiency?
What will be an ideal response?
If there is a positive externality in consumption, people not directly involved in the consumption of the product capture some of the external benefits of the product being consumed. Since the consumer does not reap the entire benefit of consumption, the consumer's marginal benefit of consumption (the demand) is reduced. This results in the consumer consuming less of the product, leading to a market equilibrium which is less than the efficient equilibrium and resulting in a deadweight loss.
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The threat of a large fine for failure to pay income taxes is an example of
A) the excessive power of the Internal Revenue Service. B) the ineffectiveness of incentives to get people to pay their taxes. C) a negative incentive to get all people to pay taxes. D) people failing to consider all the benefits the government provides them.
An addition of a complementary resource would ______ the marginal revenue product of any given resource.
A. raise B. lower C. have no effect upon