FIGURE 12-1

-Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the total amount that the firms have to pay society equal to?
A) AC
B) ACB
C) OHAD
D) FHAC

Question

FIGURE 12-1
 
-Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the total amount that the firms have to pay society equal to?
A) AC 
B) ACB 
C) OHAD 
D) FHAC

Quizplus · Accepted Answer

To internalize the externality, firms need to compensate for the societal costs that are not accounted for in the market price. This is represented by the area under the social cost curve and above the supply curve, up to the socially optimal quantity, which is the area FHAC.

FIGURE 12-1 -Refer to Figure 12-1, Which Represents a Hypothetical Market for a Hypothetical