FIGURE 16- 1
-Refer to Figure 16- 1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC0 and MB1,respectively,then there exists

Question

FIGURE 16- 1 
-Refer to Figure 16- 1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC0 and MB1,respectively,then there exists

Quizplus · Accepted Answer

The equilibrium point A assumes that the private marginal cost (MC) equals the private marginal benefit (MB). However, if the social marginal cost (MC0) and social marginal benefit (MB1) are considered, then the social marginal benefit exceeds the private marginal benefit at point A. This indicates the presence of an external benefit, as the society benefits more than what individuals perceive.