Use the following to answer the questions below: MSB is the marginal social benefit of the good;
Question:
Use the following to answer the questions below:
MSB is the marginal social benefit of the good; MSC, the marginal social cost.
a. If there are no externalities, how many units of this good should be produced? How many will be produced?
b. If there are positive externalities so that each buyer gets one-half of the social benefit of the good, how many units should be produced? Will be produced? What would the government have to do to get the optimal amount produced?
c. If there are negative externalities so that each seller pays half the social cost of the good, how many units should be produced (assume there are no positive externalities)? Will be produced?
What should the government do to get the optimal amount produced?
Quantity MSB MSC 1 2 $10 $8 $1 $2 3 4 $6 $3 5 $4 $3 6 $2 $4 $6 $8 7 $1 $10
Step by Step Answer:
a Four units should be and will be produced b Four unit...View the full answer
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