Figure: Traffic Lights in Plymouth
(Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents.The figure Traffic Lights in Plymouth shows the marginal social benefit and marginal cost of traffic lights in town.We know that each of the residents has the same individual marginal benefit per traffic light.If the government provides traffic lights, the socially efficient quantity is:

Question

Quizplus · Accepted Answer

The socially efficient quantity is where marginal social benefit equals marginal cost, which is at a quantity of 8 traffic lights. At this quantity, the total social benefit is greater than the total social cost, resulting in a net positive externality for the town. Any quantity less than 8 would result in the town not benefiting from all the possible positive externalities, and any quantity greater than 8 would result in the town incurring more costs than benefits.