11. Which of these figures portrays the market failure of positive externalities (positive external benefits)? a) Figure A b) Figure B. c) Both Figure And and Figure B d) Neither Figure A nor Figure B e) Cannot tell from the information available.

11. Which of these figures portrays the market failure of positive externalities (positive external benefits)? a) Figure A b) Figure B. c) Both Figure And and Figure B d) Neither Figure A nor Figure B e) Cannot tell from the information available.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 9E

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

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