Author Question: What are pecuniary externalities? Explain with the help of an example. What will be an ideal ... (Read 71 times)

JMatthes · **on:** Jun 29, 2018

What are pecuniary externalities? Explain with the help of an example.

What will be an ideal response?

Question 2

Which of the following is likely to be observed among unemployed individuals if the government offers generous unemployment benefits?

A) Higher motivation to look for a job
B) Increased acceptance of low-paying jobs
C) Lower current consumption
D) Reduced motivation to look for a job

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

Answer to Question 1

A pecuniary externality occurs when a market transaction affects others through market prices. For example, if a large number of consumers decide to purchase a car, the price of the car will increase due to an increase in demand. This creates a pecuniary externality for other potential buyers of the car in the form of higher prices.

Answer to Question 2

D