Answered: Consider the above graph. Is there an…

Consider the above graph. Is there an externality present in this market? If so, what kind? No, there is no externality. Yes, a negative externality. Yes, a positive externality.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

Question

Consider the above graph. Is there an externality present in this market? If so, what kind?

No, there is no externality.

Yes, a negative externality.

Yes, a positive externality.

Price
Q1 Q2
Q3
Supply
(Private Cost)
Social Value
Demand
(Private Value)
Quantity

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