Learning Path
Question & Answer
Choose the Best Answer
The transportation system leads to increased property values in nearby neighborhoods, outweighing the costs of construction.
The transportation system reduces traffic congestion, but the construction costs are higher than the benefits of reduced travel time.
The transportation system is funded entirely by government grants, with no consideration of its impact on local businesses.
The transportation system increases pollution levels, causing health issues that outweigh its convenience.
Understanding the Answer
Let's break down why this is correct
The new system lifts nearby property values, which is the social benefit. Other options are incorrect because This mixes a cost that is higher than a benefit, so MSC > MSB; Funding does not decide the benefit or cost.
Key Concepts
Externalities and Social Optimum
hard 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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