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From course:

Economics A Level

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Question:

How can you show that the Equilibrium Point in a Market is NOT the Socially Optimal Point?

Author: go kys



Answer:

-Since Supply and Demand only Factors the Private Cost and Benefit, we can Replace Supply with MPC and Demand with MPB -The Equilibrium Point then would be where MPC and MPB meet -The Socially Optimal Point would be then where the MSC and MSB meet, so, Including them in the Diagram creates their own Price and Quantity that can be More or Less. -The Socially Optimal Point would cover the Maximum Benefit of Positive Externalities and Cover the Cost of Negative Externalities.


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go kys
go kys