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
A) an external benefit.
B) an external cost.
C) an external benefit and an external cost.
D) a social cost that exceeds the private cost.
E) no external benefits or costs.

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
A) an external benefit. 
B) an external cost. 
C) an external benefit and an external cost. 
D) a social cost that exceeds the private cost. 
E) no external benefits or costs.

Quizplus · Accepted Answer

The social marginal benefits (MB1) are higher than the private marginal benefits at equilibrium point A, indicating an external benefit.

FIGURE 16-1 -Refer to Figure 16-1. Suppose That the Perfectly Competitive Market