Figure 10-1 (above)- For the described negative externality, what is the market Price/Quantity combination without any efforts to correct the market? B) Figure 10-1 (above)- For the described negative externality, what will happen to the equilibrium price and quantity if the government imposes a tax to remedy the negative externality (don't use exact numbers)? C) For a negative externality, briefly explain wh

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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.