Why does the existence of an external benefit lead to the production of less than the efficient quantity?
What will be an ideal response?
Buyers ignore the presence of an external benefit because the benefit they receive is the private benefit. As a result, buyers do not take account of all the benefits from a good or service. Because buyers do not take account of all the benefits, their demand for the good or service, which reflects their private benefit, is less than the marginal social benefit, is less than the marginal social benefit. So, with the demand being less than the marginal social benefit, the equilibrium quantity is less than the efficient quantity.
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Because Product X has a large positive income elasticity, it is likely that the product
A) has many good substitutes. B) has few good complements. C) is a necessity. D) is a luxury.
Refer to the graph. Which of the following would best be explained by an expansionary monetary policy?
A. A shift from SML 1 to SML 2 .
B. A shift from SML 2 to SML 1 .
C. A move from A 1 to A 2 .
D. A move from A 2 to A 3 .