Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure.Suppose it represents the demand and marginal cost of pounds of shrimp in the bay.The additional cost of the shrimp due to the depletion of the common resource is equal to AC.Without government intervention, the market will produce pounds of shrimp.
A)0
B)E
C)F
D)G

Question

Quizplus · Accepted Answer

At the market equilibrium point E, the quantity of shrimp produced is higher than the socially optimal level. This is because the market does not take into account the additional cost of depleting the common resource, represented by AC. The socially optimal level would be at point F, where the marginal cost intersects with the demand curve. Therefore, government intervention is necessary to reduce the quantity produced to the socially optimal level. Point C represents the quantity of shrimp that would be produced with government intervention to correct this market failure.

Figure: Market Failure (Figure: Market Failure) Look at the Figure Market Failure.Suppose It