Answer to Question #65701 in Economics of Enterprise for alexa
Explain these arguments
Tell whether you agree or disagree with them and why
I agree with this argument because indeed firms have no stimulus to produce goods that everyone can use without paying for. For example, only government can supply street lighting or provide national defense.
(2) Other type of goods may be produced with marginal private costs that are smaller than social ones. Negative externalities appear when society has to pay expenses that the producer hasn’t paid for (i.g. air pollution).
I agree with the second argument also. Market equilibrium emerges from supply based on private costs and benefits, but optimum quantity of output will be lower as total costs include negative externalities.
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