Explain why an external benefit leads to an under-allocation of ...

[tuffie]

Explain why an external benefit leads to an under-allocation of resources to the production of a good.
 
  What will be an ideal response?

Question 2

Which one of the following industries is best classified as an oligopoly?
 
  A) textbook publishers
  B) retailing
  C) wheat farms in the United States
  D) fast food restaurants

[olderstudent]

Answer to Question 1

An external benefit is the benefit associated with the consumption of a good that is not borne by the buyer. Rather, the benefit is borne by third parties. The buyer calculates the amount of the good to consume by comparing private benefits and costs. By ignoring the external benefit, the buyer consumes less of the good than would be the case if the buyer actually received the full benefits of consumption. Hence, society under allocates resources to the production of the good.

Answer to Question 2

A

[tuffie]

TYSM

[Hdosisshsbshs]

Excellent