Question

is a shortage of a product. We would expect price to anded to decrease, and quantity supplied to increase. anded to increase, and quantity supplied to decrease. nded to increase, and quantity supplied to decrease. ded to increase, and quantity supplied to increase. hod of production. de of the production possibilities curve. ilable resources. hix most wanted by society. crease in market equilibri 47 Refer to the diagram of the market for product X. Curve Si embodies all costs (including externalities), and Di embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is 02, we can conclude that the existence of external A) benefits has resulted in an overallocation of resources to X. B) benefits has resulted in an underallocation of resources to X. costs has resulted in an underallocation of resources to X. has resulted in an overallocation of resources to X. town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that 48. Suppose that the Anytown city government asks private citizens to donate money to support the A) government should tax the producers of holiday lighting. B) resources are currently overallocated to the provision of holiday lighting in Anytown. are currently underallocated to the provision of holiday lighting in Anytown. the display creates negative externalities

Answer 1

47. Correct option is Option C. This is an example of positive consumption externality in which marginal social benefits are more that marginal private benefits. Social Equilibrium output is more than currently achieved. It shows under allocation of resources.Option A and D are incorrect explained above (Example of under allocation ). Option B is incorrect as social equilibrium price is less than current price.

48. Correct answer is option C. It suggests that people are ready to donate as it creates positive externality of consumption for them. It also shows that resources are under allocated for holiday lights. Option A is incorrect as taxing would make it under consumed. Option B is incorrect as explained in option C. Option D is incorrect as people will not donate if it creates negative externality.