Consider the following supply and demand curves for buying shrimps. Shrimps produce positive externalities; in addition to the benefit they generate for those who consume them, they filter impurities from the water they grow in, which benefits everyone who uses the water. This is represented in the following graph, which shows a higher marginal social benefit than marginal private benefit. What is the socially efficient number of oysters to be sold?

Consider the following supply and demand curves for buying shrimps. Shrimps produce positive externalities; in addition to the benefit they generate for those who consume them, they filter impurities from the water they grow in, which benefits everyone who uses the water. This is represented in the following graph, which shows a higher marginal social benefit than marginal private benefit. What is the socially efficient number of oysters to be sold?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section: Chapter Questions

Problem 1QP

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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.

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What is the socially efficient number of oysters to be sold?

$180
S = MPC = MSC
$140
$108
MSB
$60
D = MPB
40
72
Q

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