Marginal Cost and Benefit Diagrams

The video tutorial covers the construction and analysis of marginal cost and benefit diagrams, focusing on the concept of the margin and its application in economics. It explains how to model externalities and provides a six-step process for constructing and analyzing these diagrams. The tutorial also discusses the differences between private and social costs and benefits, and how to identify deadweight loss in economic graphs.

What does the concept of the margin refer to in economics?

• The total cost of production

• The next unit or item

• The average cost of production

• The total benefit of consumption

In a marginal cost and benefit diagram, what is typically shown on the horizontal axis?

• Currency

• Output

• Time

• Price

What does the demand curve represent in a marginal cost and benefit diagram?

• Marginal social benefit

• Marginal social cost

• Marginal private cost

• Marginal private benefit

What is the first step in constructing a marginal cost and benefit diagram?

• Identify the social optimum

• Calculate the deadweight loss

• Draw the private cost and benefit curves

• Determine the type of externality

How is a positive externality represented in a marginal cost and benefit diagram?

• Outward shift of the cost curve

• Inward shift of the benefit curve

• Outward shift of the benefit curve

• Inward shift of the cost curve

What does the vertical distance between the benefit curves indicate?

• The total cost

• The marginal cost

• The total benefit

• The size of the externality

In the context of externalities, what does the term 'deadweight loss' refer to?

• The total benefit of consumption

• The marginal cost of production

• The loss of welfare to society

• The total cost of production

What happens to the cost curve in a negative externality of production?

• It becomes vertical

• It shifts inward

• It remains unchanged

• It shifts outward

Where does the social optimum occur in a marginal cost and benefit diagram?

• Where the marginal private cost meets the marginal social cost

• Where the marginal private benefit meets the marginal social benefit

• Where the marginal private benefit meets the marginal private cost

• Where the marginal social benefit meets the marginal social cost

What is the final step in analyzing a marginal cost and benefit diagram?

• Draw the private cost and benefit curves

• Establish the deadweight loss

• Determine the type of externality

• Identify the social optimum