Refer to the figure below. This graph suggests that the private market provides incentives to:
A)eliminate the externalities generated by paper production.
B)under-produce paper relative to the social optimum.
C)over-produce paper relative to the social optimum.
D)over-price paper relative to the social optimum.

Question

Refer to the figure below. This graph suggests that the private market provides incentives to: 
A)eliminate the externalities generated by paper production. 
B)under-produce paper relative to the social optimum. 
C)over-produce paper relative to the social optimum. 
D)over-price paper relative to the social optimum.

Quizplus · Accepted Answer

The private market would provide 350 tons; the socially optimal quantity is 300 tons.

Refer to the Figure Below