"If production of a good creates an external cost, then, when production is such that the marginal private costs are equal to the marginal private benefits, the market outcome will be inefficient
" Explain whether this assertion is correct or incorrect.
The assertion is correct. Efficiency requires that the marginal social benefit equal the marginal social cost. If the production of a good creates an external cost, then the marginal private cost does not equal the marginal social cost. So, even if the marginal private benefit equals the marginal social benefit, setting the marginal private cost equal to the marginal private benefit creates inefficiency because the marginal social benefit does not equal the marginal social cost.
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A decrease in demand will cause a decrease in price, which will cause a decrease in supply
a. True b. False Indicate whether the statement is true or false
Activists believe that
A) there is sufficient flexibility in wages and prices to allow the economy to equilibrate at full-employment Real GDP in a reasonable period of time. B) discretionary fiscal policies do not work. C) discretionary monetary policies do not work. D) fine-tuning to smooth out the business cycle is feasible.