Why are externalities called market failures? Are pecuniary externalities also an example of market failure?
What will be an ideal response?
Externalities are called market failures because the market allocates resources without considering the costs and benefits of externalities. Since firms and individuals do not consider externalities when they make choices, the market fails to arrive at a socially efficient outcome. Pecuniary externalities are not market failures because they do not result in market inefficiencies. Pecuniary externalities exist when market transactions affect third parties, but only through the market price. The market price will then correctly reflect the society-wide impact of market transactions and therefore pecuniary externalities are not market failures.
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The market value of all final goods and services produced by Canadians regardless of where they're located is
a. Canadian personal income b. Canadian national income c. Canadian capital income d. Canadian gross national product e. Canadian gross domestic product
At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225 . The firm
a. has a profit of $25 per unit of output. b. should shut down if its short-run average fixed cost is less than $25. c. has a loss of $100 per unit of output. d. should shut down if its short-run average variable cost exceeds $25.