-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. When the market for gasoline in Motorland is in equilibrium, the market price of gasoline is ________ the marginal social cost.
A) $1.50 above
B) $1.50 below
C) equal to
D) $1.20 above

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. When the market for gasoline in Motorland is in equilibrium, the market price of gasoline is ________ the marginal social cost.
A) $1.50 above 
B) $1.50 below 
C) equal to 
D) $1.20 above

Quizplus · Accepted Answer

The market price of gasoline in equilibrium does not account for the external cost, so it is $1.50 below the marginal social cost, which includes the external cost.

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