The marginal costs and prices of a purely competitive market system accurately measure:
a. Both spillover costs and spillover benefits
b. Spillover costs but not spillover benefits
c. Spillover benefits but not spillover costs
d. Neither spillover costs nor spillover benefits
thanks for the help :)
Do a little research, then take a shot. What do you think?
Hint: the answer is d
h
To determine the correct answer, we need to understand what marginal costs and prices represent in a purely competitive market system.
In a purely competitive market system, firms are price takers, meaning they have no control over the market price of their products. Due to perfect competition, all firms in the market sell homogeneous goods and face a horizontal demand curve.
In this system, the marginal cost refers to the additional cost incurred by producing one more unit of a good or service. It includes variable costs such as labor, materials, and utilities but does not consider fixed costs like rent or machinery.
The market price, on the other hand, is determined by the interaction of market demand and supply. It represents the price at which buyers are willing to purchase a product and sellers are willing to sell it.
Considering these definitions, it becomes evident that marginal costs and prices in a purely competitive market system do not accurately measure spillover costs or spillover benefits. Spillover costs refer to the costs imposed on society or third parties that are not directly involved in the production or consumption process. Spillover benefits, on the other hand, are the positive effects experienced by society or third parties due to a production or consumption activity.
Since marginal costs and prices in a purely competitive market system only reflect the individual costs and profitability of firms, they are not capable of capturing the broader impacts on society or third parties. Therefore, the correct answer is option d: Neither spillover costs nor spillover benefits.