Use the figure below to answer the following questions. Figure 15.2.2
-Refer to Figure 15.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.How many units of good A are produced in an unregulated market?
A)0 units
B)5 units
C)6 units
D)8 units
E)9 units

Question

Use the figure below to answer the following questions.  Figure 15.2.2
-Refer to Figure 15.2.2.This figure shows the demand curve,the marginal private cost curve and the marginal social cost curve of good A.How many units of good A are produced in an unregulated market?
A)0 units 
B)5 units 
C)6 units 
D)8 units 
E)9 units

Quizplus · Accepted Answer

In an unregulated market, the equilibrium quantity is where the demand curve intersects with the marginal private cost curve, which is at 8 units. At this quantity, the price is $5 and the marginal social cost is $10. This creates a negative externality of $5 per unit, as the marginal social cost exceeds the price. To achieve the socially optimal level of output, a tax or regulation that internalizes the externality would need to be implemented to reduce the quantity to 6 units, where the demand curve intersects with the marginal social cost curve.

Use the Figure Below to Answer the Following Questions