Figure: Marginal Social Cost and Supply (Figure: Marginal Social Cost and Supply) In the figure Marginal Social Cost and Supply, the marginal social cost curve lies above the supply curve:

Question

Figure: Marginal Social Cost and Supply   (Figure: Marginal Social Cost and Supply) In the figure Marginal Social Cost and Supply, the marginal social cost curve lies above the supply curve:

Quizplus · Accepted Answer

The marginal social cost curve lies above the supply curve because the marginal social cost includes the cost of depleting this common resource. As the quantity of the common resource increases, the cost of depleting it also increases, leading to an increase in the marginal social cost. Therefore, the socially efficient quantity of this common resource is where the marginal social cost intersects with the demand curve, and not at the point where the supply curve intersects with the demand curve.