Scenario 10-4 the Demand Curve for Fire Extinguishers Slopes Downward and the and the Supply

question 167

Essay

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500^th fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
-Refer to Scenario 10-4. Is the socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

---

Definitions:

Cognitive Schema

A mental framework or structure that organizes and interprets information in the brain.

Hindsight Bias

The tendency to overestimate one’s ability to have predicted an event after the outcome is known; the “I knew it all along” phenomenon.

Heuristic

A rule of thumb that suggests a course of action or guides problem solving but does not guarantee an optimal solution.

Cognitive Schema

A mental framework that helps organize and interpret information, based on past experiences and knowledge.