8. What are gains from trade? How are they affected by transaction costs?

9. If commodities are priced according to the average cost of producing them, is the resulting market equilibrium socially optimal? Explain your reasoning.

10. In an economy where all markets are competitive and there are no externalities, what can you say about the allocation of resources resulting in that economy?

11. What is meant by the economic term "market failure"? 2

12. What is the difference between the definition of a pecuniary externality and a real (physical) externality? Do both types of externality lead to a market failure?