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 the competitive equilibrium quantity is

Question

Quizplus · Accepted Answer

Since the social marginal cost (MC0) is greater than the private marginal cost (MC1), the competitive equilibrium quantity (Qc) will be too low for allocative efficiency. This is because the market is not taking into account the negative externalities (represented by the difference between MC0 and MC1) that the production and consumption of the good creates for society. As a result, there is underproduction and resources are not being allocated efficiently.

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