In a market supply and demand graph, the socially efficient outcome occurs
a. Where the private marginal benefits intersect with the social marginal costs
b. Where the private marginal benefits intersect with the private marginal costs
c. Where the social marginal benefits intersect with the social marginal costs
d. Where the social marginal benefits intersect with the private marginal costs
e. Where externalities are maximized
Answer: c. Where the social marginal benefits intersect with the social marginal costs
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In the above figure, the curve that represents the most income equality is
A) a. B) b. C) c. D) d.
Continuing with the same family from the preceding question, suppose a risk neutral insurance company exists to provide vacation insurance. Suppose further that each vacation day requires a constant expenditure, and this expenditure is standard across everybody. This allows us to simplify the problem by considering all payments to be in terms of vacation days. What is the least the insurance
company would charge (in terms of vacation days)? a. 3 b. 4 c. 5 d. 6