If a good generates an external cost, the market will produce: a.) Too much of the...

If a good generates an external cost, the market will produce:

a.) Too much of the good.
b.) Some of the good but not enough.
c.) None of the good.
d.) An optimal amount of the good.

Expert Solution

Ans) Option A

Negative externality refers to the negative effects that the action of an individual or a firm has on the society as a whole.

The private marginal cost refers to the additional cost incurred in the production of an extra unit of a good.

It is shown in the diagram and is upward sloping line meaning that as the production of a good increases, the marginal cost of good is increasing.

The other girl in the diagram is the private marginal benefit curve and the equilibrium occurs where the marginal cost equals the marginal benefit. This is the optimal point from an individual point of view.

Social optimal Point

There is one more equilibrium which is based on the welfare of the whole society. To find that we first need to find the social marginal cost which is equal to the private marginal cost plus the external cost at each level of output.

The social marginal cost is represented by the red line in the diagram.

Social optimal equilibrium occurs where the social marginal cost intersects the marginal benefit curve.

Social optimal quantity is less than that produced at a private optimal point.

Therefore it can be concluded that when there is a negative externality, more of a good is produced.

Rahul Sunny answered 2 years ago

5 uncertainities about how much it will cost to produce a new product in the market

What happens if the body does not produce myosin or produces too much?

Potted plants may die if they get too much of a good thing. With what you...

Potted plants may die if they get too much of a good thing. With what you now know about water relations in plants, why might it be harmful to a plant to have too much soluble N, P, and K applied to its container?

Explain why a negative externality in production results in too much of the good being produced...

Explain why a negative externality in production results in too much of the good being produced from society's perspective, whereas a positive externality results in too little being produced. How, according to Pigou, might such over- and under-allocation of resources be corrected?

Panera Bread's External Market Opportunities and Threats? As much as possible please.

[20 marks] Does a market economy provide too little or too much incentive to undertake innovation? Explain, identifying...

[20 marks] Does a market economy provide too little or too much incentive to undertake innovation? Explain, identifying the criterion you are using to answer. Identify the roles that competition and appropriability play in your answer. [20 marks] Does empirical evidence show that patents increase innovation rates or not? Explain, citing evidence and measurement issues as appropriate. [10 marks] Compare the static and dynamic welfare effects of using patents to incentivise innovation or, alternatively, using prizes to incentivise innovation. Point out both advantages and disadvantages of...

1. In much of life we hear of the relationship of cost to benefit, so too...

1. In much of life we hear of the relationship of cost to benefit, so too does it exist in accounting. In the conceptual framework, the cost-benefit relationship is referred to as the pervasive constraint. This means that the benefits to be derived from providing certain accounting information should exceed the costs of providing that information. Discuss the difficulty in applying this constraint to accounting information.

Thalassemia is a genetic disorder where affected individuals have red blood cells that produce too much...

Thalassemia is a genetic disorder where affected individuals have red blood cells that produce too much iron. This disease is inherited as an autosomal recessive (tt). However, heterozygous individuals (carriers= Tt) may have some immunity to malaria (similar to sickle cell anaemia). Human blood samples are obtained from a Mediterranean population of 100 people where malaria is endemic. Of these, 50 people are found to be carriers (Tt), and additional 3 people have thalassemia (tt). Use these observed results to...

With external costs, is the competitive output too large or to small? With external benefits? Why...

With external costs, is the competitive output too large or to small? With external benefits? Why does this lead to an inefficient allocation of resources?

Perfect competitive market n=6, firms produce same good, x. Fixed cost for both firms is $15...

Perfect competitive market n=6, firms produce same good, x. Fixed cost for both firms is $15 and variable cost x^2. Demand for x = 240 – P, P is market price of X. Find the profit max output for a single firm as a function of P Calculate aggregate supply and use it determine the equilibrium price P* in the market for x. At the equilibrium price P*, what is an individual firm’s profit?

Question