What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?
What will be an ideal response?
Private benefit from consumption is the benefit received from the consumer of a good or service. Social benefit from consumption is the total benefit from consuming a good or service, including both the private benefit and any external benefit. The private benefit and the social benefit are equal when no externalities exist.
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An increase in aggregate demand is most likely to cause an increase in the price level when the economy is
a. operating near full employment. b. on the horizontal part of the aggregate supply curve. c. operating with high unemployment. d. operating with substantial excess capacity.
Consider an incumbent that is a monopoly currently earning $2 million annually. Given the declining costs of raw materials, the incumbent believes a new firm may enter the market. If successful, a new entrant would reduce the incumbent's profits to $1.2 million annually. To keep potential entrants out of the market, the incumbent lowers its price to the point where it is earning $1.6 million annually for the indefinite future. If the interest rate is 10 percent, does it make sense for the incumbent to limit price to prevent entry?
A. Yes, since $2 million > $200,000. B. Yes, since $4 million > $400,000. C. No, since $4 million > $400,000. D. No, since $2 million > $200,000.