Exhibit 15-1
-Refer to Exhibit 15-1. The amount of externality is reflected in the difference between

Question

Exhibit 15-1 
-Refer to Exhibit 15-1. The amount of externality is reflected in the difference between

Quizplus · Accepted Answer

The externality is the difference between the socially optimal quantity (where the MSB curve intersects the MSC curve) and the quantity produced without intervention. In this case, the socially optimal quantity is Q2 and the quantity produced without intervention is Q1. Therefore, the difference between P₁ and P₃ reflects the amount of externality. Choice A compares the quantities produced at two different prices and does not provide information about the externality. Choice C compares the prices of two different quantities and does not provide information about the externality. Choices D and E compare the price at the socially optimal quantity with the price at the current quantity produced, but they do not provide information about the difference between the two quantities.

Exhibit 15-1 -Refer to Exhibit 15-1. the Amount of Externality Is Reflected