If there is no externality, use a diagram to explain the efficiency loss due to the...

If there is no externality, use a diagram to explain the efficiency loss due to the insurance price subsidy.

Expert Solution

As a result of a negative externality, the market equilibrium quantity is too "high" compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too "low" compared to the socially optimal quantity. Because market equilibrium does not include psoitive outcomes from positive externalities and negative outcomes from negative one.

Rahul Sunny answered 2 years ago

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