Consumers in a Market-Directed Economy

question 300

Multiple Choice

Consumers in a market-directed economy

• A) enjoy limited freedom of choice.
• B) are taxed to provide for goods and services that benefit society, such as public health, national defense, highways, police and fire protection.
• C) do not decide what is to be produced and by whom.
• D) have to buy what is being produced.
• E) do not have to buy any goods or services.

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Definitions:

Externalities

Costs or benefits that affect parties who did not choose to incur those costs or benefits, often leading to market inefficiencies.

MSB

Marginal Social Benefit, which refers to the additional benefit society gains from consuming one more unit of a good or service.

MSC

MSC stands for Marginal Social Cost, which is the total cost to society of producing an additional unit of a good or service, including both private and external costs.

Coase Theorem

An economic theory that suggests that if property rights are clearly defined and transaction costs are negligible, private negotiations will lead to the efficient resolution of disputes regardless of the initial allocation of rights.