-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. The efficient quantity of gasoline to sell in Motorland is
A) 1.7 million gallons per month.
B) 1.8 million gallons per month.
C) 1.6 million gallons per month.
D) 1.9 million gallons per month.

Question

-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. The efficient quantity of gasoline to sell in Motorland is
A) 1.7 million gallons per month. 
B) 1.8 million gallons per month. 
C) 1.6 million gallons per month. 
D) 1.9 million gallons per month.

Quizplus · Accepted Answer

The efficient quantity is where the marginal social cost (MSC) equals the marginal social benefit (MSB). The MSC is the supply curve plus the external cost, which is $1.50 per gallon. The MSB is the demand curve. The efficient quantity is where the MSC and MSB intersect, which is at 1.7 million gallons per month.

-In the Figure Above, S Is the Supply Curve and D