Item9
2
points
eBookItem 9
If the economy relies entirely on markets to answer the WHAT question, it tends to _____ goods with external benefits and _____ goods with external costs.
Multiple Choice
underproduce; underproduce
underproduce; overproduce
overproduce; overproduce
overproduce; underproduce
overproduce; underproduce
If the economy relies entirely on markets to answer the WHAT question, it tends to underproduce goods with external benefits and overproduce goods with external costs.
To determine the correct answer, let's break down the question and the multiple-choice options.
The question states that if the economy relies entirely on markets to answer the "WHAT" question, it tends to have certain outcomes related to goods with external benefits and goods with external costs.
To understand the concept of external benefits and external costs, we can consider that some goods or activities can have positive effects (benefits) or negative effects (costs) on other individuals or society as a whole, even if they are not directly involved in the transaction.
Now let's analyze each multiple-choice option:
Option 1: underproduce; underproduce
This option suggests that the economy would underproduce goods with external benefits and also underproduce goods with external costs.
Option 2: underproduce; overproduce
This option proposes that the economy would underproduce goods with external benefits but overproduce goods with external costs.
Option 3: overproduce; overproduce
This option implies that the economy would overproduce both goods with external benefits and goods with external costs.
Option 4: overproduce; underproduce
This option states that the economy would overproduce goods with external benefits but underproduce goods with external costs.
Now, if we consider the negative externality associated with goods that have external costs, such as pollution, the market may not fully account for these costs. Conversely, for goods with external benefits, like education or vaccinations, the market may not fully consider the positive effects on society.
Therefore, the correct answer is Option 2: underproduce; overproduce. When relying solely on markets to answer the "WHAT" question, the economy tends to underproduce goods with external benefits and overproduce goods with external costs.