Вопрос
Outline how the relationship between marginal benefit and marginal cost at the new (after-subsid)) equilibrium relates to allocative efficiency (or inefficiency).
Решения
4.2
(124 Голоса)
Олег
профессионал · Репетитор 6 лет
Ответ
The relationship between marginal benefit and marginal cost at the new (after-subsidy) equilibrium is such that the marginal benefit is greater than the marginal cost. This indicates allocative inefficiency because the price is artificially lowered due to the subsidy, leading to a situation where the consumer is getting more benefit than the cost of production.
Объяснение
## Step 1The concept of allocative efficiency is a fundamental principle in economics. It refers to a state where resources are allocated in a way that maximizes the overall benefit to society. This is achieved when the marginal benefit (MB) equals the marginal cost (MC).## Step 2When a subsidy is introduced, it effectively lowers the cost of production. This shift in cost can lead to a new equilibrium point where the MB is greater than the MC.## Step 3This new equilibrium point, where MB > MC, indicates that the consumer is getting more benefit than the cost of production. This is a sign of allocative inefficiency.## Step 4The reason for this inefficiency is that the price is artificially lowered due to the subsidy. This means that the consumer is getting more benefit than the cost of production, which is not a sign of allocative efficiency.## Step 5In an ideally efficient market, the price should reflect the true cost of production. However, with the introduction of a subsidy, the price is artificially lowered, leading to a situation where the MB > MC, which is a sign of allocative inefficiency.