Interpreting Market Prices During a Shortage

An individual's satisfaction is determined by a function of two variables: hours of free time and units of consumption. Assume that having more of either variable always increases satisfaction. If this individual experiences a small decrease in their hours of free time, what change in consumption is necessary for their overall level of satisfaction to remain exactly the same?

In a competitive market, the price of a good is often considered a good measure of its marginal social benefit. Consider the market for a new type of air purifier. Under which of the following conditions would the market price of the purifier be an underestimate of its true marginal social benefit?

Honey Production and Social Benefit

Evaluating Price Controls on Essential Goods

On a chart that organizes countries from poorest (left) to richest (right) based on average income, and where the width of each country's bar represents its population size, a country depicted with a very wide bar on the far right of the chart would represent a nation with a large population and a low average income.

In a large, competitive market for a specific type of apple, the price settles at $3 per kilogram. Assuming there are no significant effects on third parties from the production or consumption of these apples, what does this market price most accurately represent?

A city is considering how to manage its public transportation system. An economist observes that in addition to the direct benefit to riders, a widely used bus system also reduces traffic congestion and air pollution for all residents. In the current market, the bus fare is determined by the intersection of supply and the demand from riders. How does this bus fare most likely compare to the marginal social benefit of a single bus ride?

A factory produces a chemical sold in a competitive market. The production process releases a pollutant into a nearby river, which negatively impacts the local fishing industry. Assuming the market price of the chemical is determined solely by the supply from the factory and the demand from its direct buyers, how does this price relate to the marginal social benefit of the chemical?

Match each market scenario with the most likely relationship between the market price of the good and its marginal social benefit (MSB).