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Externalities and Social Optimum
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Imagine a city plans to upgrade its recycling program. Which option best represents the Marginal Social Benefit (MSB) of this improvement, taking into account both individual and societal advantages?

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Learning Path
Learning Path

Question & Answer
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Choose AnswerChoose the Best Answer

A

Increased community awareness of environmental issues.

B

Higher costs for the city due to new equipment.

C

More waste being sent to landfills.

D

A reduction in local jobs related to waste management.

Understanding the Answer

Let's break down why this is correct

When the city raises recycling, people learn more about the environment. Other options are incorrect because Higher costs for the city are a cost, not a benefit; Sending more waste to landfills is a bad outcome.

Key Concepts

Marginal Social Benefit (MSB)
Topic

Externalities and Social Optimum

Difficulty

easy level question

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Deep Dive: Externalities and Social Optimum

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Definition
Definition

Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.

Topic Definition

Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.

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