-Refer to the diagram above.The vertical distance between the private MC and the social MC represents
A) excess demand due to prices set too high.
B) excess demand due to prices set too low.
C) the per-unit external cost of production not picked up by the producing firm.
D) the per-unit external cost of production picked up by the consumers.
E) the per-unit external cost of production picked up by the government in the form of taxes.

Question

-Refer to the diagram above.The vertical distance between the private MC and the social MC represents
A) excess demand due to prices set too high. 
B) excess demand due to prices set too low. 
C) the per-unit external cost of production not picked up by the producing firm. 
D) the per-unit external cost of production picked up by the consumers. 
E) the per-unit external cost of production picked up by the government in the form of taxes.

Quizplus · Accepted Answer

The vertical distance between the private marginal cost (MC) and the social marginal cost (MC) represents the external cost of production that is not accounted for by the producing firm. This is because the social MC includes both the private costs and the external costs, which are costs imposed on society but not borne by the firm.

-Refer to the Diagram Above