When you consume good Q, not only do you benefit form consuming the good but other people benefit from your consumption as well, if firms produce good Q where P = MC, firms will be producing ?
Correct answer: A. less than the efficient level of output
- A. less than the efficient level of output
- B. more than the efficient level of output
- C. so that consumer surplus is zero
- D. the efficient level of output
Explanation
Because consumption creates benefits for others, social benefit exceeds the consumer's private benefit. With firms producing where price equals private marginal cost, the market output is below the socially efficient level.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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