SQ3_ExternalitiesAK(1)

P s the private market mb to will produce too few

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Unformatted text preview: produce too many P* cigarettes relative the social optimum. D MB to society Q QS Q* c. P S The private market MB to will produce too few P* society solar panels relative to the social optimum. D Q Q* QS 2. Is the following statement true of false? Explain. “There are externalities in every market because when consumers purchase more of a good, it drives up the price for everyone else. This imposes an additional cost on society and implies that all goods are overproduced.” This is false. In perfectly competitive markets, each individual consumer has no effect on the market price because there are assumed to be many buyers each of whom purchases only a small fraction of the total quantity exchanged. 3. Suppose that The Lakeside Café and Camp Canoe are both situated along the banks of Lake Dreary. Unfortunately, for the campers at C...
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