Which curve is the same as the market demand curve? Why are the ...

[Bob-Dole]

Which curve is the same as the market demand curve? Why are the curves the same?
 
  What will be an ideal response?

Question 2

In the 1980s, one of the most common sights in the socialist countries, such as the former Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These countries had price ceilings on these necessities.
 
  Some of the socialist nations, such as the former Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such as North Korea, have retained their price ceilings. What prediction do you make about the presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain your answer.

[polinasid]

Answer to Question 1

The market demand curve is the same as the marginal social benefit curve. For any quantity, the demand curve shows the dollar value of other goods and services a consumer is willing to forgo to get another unit of the good. (This amount is the maximum price the consumer is willing to pay and equals the price from the demand curve vertically above each quantity.) But the amount of other goods and services the consumer is willing to forgo is the marginal social benefit of the good. Hence along the market demand curve the price associated with each quantity of the good is the same as the marginal social benefit of that quantity. (So that, for instance, the price associated with the 3rd quantity is the same as the marginal social benefit of the 3rd unit.) Therefore the market demand curve is the same as the marginal social benefit curve.

Answer to Question 2

The long lines have disappeared in the former Soviet Union but are still present in North Korea. The socialist countries had price ceilings on necessities that were below the equilibrium price. These ceilings created shortages, thus the long lines. In the countries that have lifted the price ceilings, the price has risen toward the equilibrium price, thereby eliminating the shortages and long lines. In the nations that have retained the price ceilings, the shortages and hence the long lines have persisted.