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Figure: Market with External Cost
-(Figure: Market with External Cost) Suppose the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

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Figure: Market with External Cost

-(Figure: Market with External Cost) Suppose the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

Quizplus · Accepted Answer

The external cost is equal to the vertical distance between the supply curve () and the social cost curve (_{0), multiplied by the quantity supplied at the market equilibrium (Q*). Therefore, P₂ - P₀ is the correct expression for the external cost in this scenario.}

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