Author Question: Comment on the following statement. Once general equilibrium is achieved this will result in a ... (Read 24 times)

penguins · **on:** Jun 29, 2018

Comment on the following statement. Once general equilibrium is achieved this will result in a long-run equilibrium as well.

What will be an ideal response?

Question 2

What condition must be satisfied for the optimal level of a public good to be provided? Explain the problem of the optimal provision of public goods.

What will be an ideal response?

isabelt_18 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

First of all it is unlikely that general equilibrium would occur in the first place because all of the conditions that are necessary for it to take place do not appear to have taken shape in the real economy. But even if general equilibrium were possible it is unlikely that this would be a permanent state of affairs as there will always be changes in demand and supply in input and output markets that will disturb this equilibrium.

Answer to Question 2

The optimal level of provision of a public good occurs when society's willingness to pay for the additional unit is equal to the marginal cost of producing the good. The problem with the optimal provision of public goods is that it is impossible to know people's preferences and therefore what they are willing to pay.