Learning Path
Question & Answer
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Property values in the area increase, benefiting homeowners, despite the construction costs affecting local taxes.
The center creates a few jobs, but the construction leads to traffic congestion.
Local businesses lose customers because the center attracts visitors from outside the community.
The community center provides free classes, but the funding requires cuts to local health services.
Understanding the Answer
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Building the center makes nearby homes more attractive, so homeowners’ property prices rise. Other options are incorrect because Many think jobs created by a new center mean it is always good, but traffic jams are a hidden cost; Some assume that a center will bring outsiders who eat up local business.
Key Concepts
Externalities and Social Optimum
medium level question
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Deep Dive: Externalities and Social Optimum
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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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