The marginal social cost and private cost curves for a particular common property resource are upward sloping. What happens to the gap between the actual quantity and the socially optimal quantity as the demand for the resource becomes more inelastic?
A) Gap widens
B) Gap declines
C) Gap does not change
D) We do not have enough information to answer this question.

Question

Quizplus · Accepted Answer

When demand is more inelastic, the difference between the marginal social cost and the private cost becomes smaller. This is because producers are unable to pass on the increased costs to consumers, resulting in a smaller production gap between the actual quantity and the socially optimal quantity.

The Marginal Social Cost and Private Cost Curves for a Particular