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True / False. The private competitive equilibrium quantity is the allocation that is most efficient in...

True / False. The private competitive equilibrium quantity is the allocation that is most efficient in society if we measure well-being by total surplus
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Answer #1

When action of one individual creates loss to others but people who get loss due to that person action, does not receive any compensation from that person, then it is called negative externality. So private market equilibrium will be determined by the intersection of the MPC and MSB. So social optimum will be determined by the intersection of the MSC and MSB.

The private market equilibrium

MPC=MSB

The social optimal equilibrium

MSC=MSB

So social efficient quantity is more compare to the private optimal quantity. Hence in case of social optimal equilibrium, total surplus will be more compare to the private market equilibrium.

Hence it can be said that the private competitive equilibrium quantity is the allocation that is least efficient in society if we measure well-being by total surplus.

Hence the given statement is false.

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