Social benefit of 30 th colony 170 it would be

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social benefit of 30 th colony = $170 It would be socially efficient if the beekeeper maintained 35 colonies Total bee colonies maintained Value ($ per colony) private demand (total honey sales) private marginal cost 30 120 social demand 35 area of this triangle is deadweight social loss if only have 30 colonies
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5 Summary of economics of external benefits: What suppliers take into account in making their decisions is private demand Social demand = private demand plus external marginal benefits What suppliers should take into account in making their decisions is social demand When social demand > private demand, too little of the activity is undertaken and result is socially inefficient A socially efficient allocation calls for setting marginal social benefit = marginal social cost If social MB > social MC, should have more of activity If social MB < social MC, should have less of activity With perfect competition and no externalities, social MC = private MC and social MB = private MB This is why perfect competition with no externalities results in socially efficient allocation (= Adam Smith’s “invisible hand”) When there are external costs or benefits, maximization of private profit is not in the public’s interest, and Adam Smith’s “invisible hand” does not work correctly
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  • Spring '08
  • Kim
  • Externalities, San Diego, Externality, External Costs, Marginal social benefit

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