If There Are External Benefits Associated with the Consumption of a Good

question 118

Multiple Choice

If there are external benefits associated with the consumption of a good or service,

• A) the private demand curve will overestimate the true demand curve.
• B) the private demand curve will underestimate the true demand curve.
• C) consumers are paying for all these benefits in private markets.
• D) the market demand curve will be the vertical summation of the individual demand curves.

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Definitions:

Perfect Substitutes

Products or services that can be used in exactly the same way by the consumer and that are perceived as identical in satisfying an individual's needs or desires.

Perfect Complements

Goods that are consumed together in fixed proportions to fulfill a specific utility.

Convex Preferences

A set of consumer preferences that exhibit a specific property where mixtures of goods are preferred over singular extremes, displaying a curve outward towards the origin on a utility graph.

Weakly Convex

Describes a curve or set in geometry and mathematical functions that bulges outward less sharply than a perfectly convex shape, often applied in optimization problems.