a) If there are external benefits associated with the consumption of a good or service
the market demand curve will overestimate the true demand curve.
the market demand curve will underestimate the true demand curve.
consumers are paying for all these benefits.
the market demand curve will be the vertical summation of the individual demand curves.
b) Market failure is said to occur whenever
competitive markets do not allocate resources in the most economically desirable way.
prices rise.
some consumers who want a good do not obtain it because the price is higher than they are willing to pay.
government intervenes in the functioning of competitive markets.