parties is known as. If there is a divergence
between these two marginal costs, then we can say that
are present.
b. The marginal benefit to consumers from using some good
or service is known as. The marginal benefit to
the consumers plus any benefits accruing to third parties
is known as. A is present if private
marginal benefits are less than social marginal benefits.
c. An economic outcome is allocatively efficient when
marginal social cost and marginal social benefit are
.
d. Suppose a potato chip plant is operating beside a
residential neighbourhood and produces noise and an
unpleasant odour. We can say that there is a
externality because the marginal social cost of producing
potato chips is the marginal private cost of
producing potato chips. As a result, the free market is
producing too potato chips.
e. Suppose an apple orchard is operating beside a
residential neighbourhood and provides beautiful
blossoms and a pleasant fragrance. We can say that there
is a externality because the marginal social
benefit of apples is the marginal private benefit of
apples. As a result, the free market is producing too
apples.
3. Fill in the blanks to make the following statements correct.
a. A good or service that is rivalrous and excludable (e.g., a
