Private Markets Fail to Reach a Socially Optimal Equilibrium When

question 37

Multiple Choice

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

• A)private benefit equals the social benefit at the private market solution.
• B)private cost exceeds the private benefit at the private market solution.
• C)social value exceeds the private value at the private market solution.
• D)private cost exceeds the social benefit at the private market solution.

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Definitions:

Marginal Utility

The additional satisfaction or benefit (utility) that a person receives from consuming one more unit of a good or service.

Utils

A hypothetical unit of measurement used in economics to quantify utility or the satisfaction gained from consuming goods and services.

Indifference Curve

A contour line showing all consumption bundles that yield the same amount of total utility for an individual.

Total Utility

The overall satisfaction or benefit that a consumer derives from consuming a particular quantity of goods or services.