Figure: Model of a Market for a Common Resource

question 110

Multiple Choice

Figure: Model of a Market for a Common Resource
(Figure: Model of a Market for a Common Resource) The figure Model of a Market for a Common Resource shows the intersection of the private supply and demand curves.Without any consideration of the marginal social cost of using a common resource, the quantity of the common resource used at Q will be:

• A)larger than is socially desirable.
• B)smaller than is socially desirable.
• C)efficient.
• D)indeterminate without more information.

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Definitions:

Substitution Effect

The economic principle that as prices rise or incomes decrease, consumers will replace more expensive items with less costly alternatives.

Real Wages

Real wages refer to the purchasing power of wages, taking into account inflation, showing the quantity of goods and services that can be bought.

Legal Minimum Wage

The lowest hourly, daily, or monthly remuneration that employers are legally allowed to pay workers.

Equilibrium Wage Rate

The wage rate at which the quantity of labor supplied is equal to the quantity of labor demanded in the market.