In a "second-best" world:
A)tariffs are economically optimal.
B)private actions are dictated by government agencies.
C)social marginal cost of a transaction equals social marginal benefit.
D)private actions do not lead to the best possible outcomes for society.

Question

Quizplus · Accepted Answer

In a "second-best" world, private actions do not lead to the best possible outcomes for society due to various market failures such as externalities, imperfect competition, and information asymmetries. As a result, relying solely on private actions may not lead to socially optimal outcomes. Therefore, some government intervention or regulation may be necessary to correct for these market failures and achieve socially optimal outcomes. Therefore, option D correctly reflects the scenario of a "second-best" world.

In a "Second-Best" World