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Econ question.? - iwannabamexican - 03-24-2014 11:29 AM
If too little of a good or service, compared with the socially efficient allocation, is provided by a market, then
A)private benefits and social benefits in the market are the same.
B) social costs must exceed private costs in the market.
C) positive externalities exist in the market.
D) negative externalities exist in the market.
E) All of the above
- Jurijs Fadejevs - 03-24-2014 11:30 AM
I think "B" is closest to right one - but not sure.
"A" is false so "E" is false too. "C" and "D" aren't related very directly to this issue.
- Giorgos K - 03-24-2014 11:38 AM
What we have is a deadweight loss. Companies are providing less quantity than the consumers need. This is a monopoly or oligopoly effect (if we had pure competition, market would be at equilibrium). So, private benefits exceed social benefit. At the same time, if positive externalities exist, then consumers would need less quantity (but in your case, consumers need more). If positive externalities exist, then firms would produce less quantity than consumers need, but not "too little" (deadweight loss would be not that big as in your case).
Answer is B.
I hope this helps