The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

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Answer 1

Question

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

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Answer 2

Question

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

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Answer 3

Question

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

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Answer 4

Question

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

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Answer 5

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

Answer 6

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.

Answer 7

Chapter 9, Problem 1Q

To determine

The reason for externalities causing market failure. Also, state whether pecuniary externalities causes market failure or not.

Answer 8

Expert Solution & Answer

Explanation of Solution

Externalities can be defined as the cost or benefit which is received by the third party who doesn’t want involvement in the production process. Thus, it causes market failure as the market allocates resources without considering the costs and benefits of externalities. When there is an externality, there exists market failure. Because, in this case, the market decides to produce the result where the production is higher than the cost.

The market is considered as inefficient and flops to achieve the social surplus. An externality can be positive or negative. Pecuniary externalities are not considered as an example of market failure because this type of externality mainly deals with money. It is the externality where the action of both parties affects the price of the particular good.

These pecuniary externalities are mainly different from real externalities. It is mainly affected by the market mechanism. For example, when new residences are built up, the prices might go up in the real estate market.