Exhibit 30-4

Refer to Exhibit 30-4. If a negative externality exists, then the socially optimal output is

Question

Exhibit 30-4 Refer to Exhibit 30-4. If a negative externality exists, then the socially optimal output is A)Q₁. B)Q₂. C)Q₁ - Q₂. D)Q₂ - Q₁.

Quizplus · Accepted Answer

The socially optimal output is where marginal social cost (MSC) equals marginal social benefit (MSB), which is at point U1 on the horizontal axis. The market equilibrium, where marginal private cost (MPC) equals marginal private benefit (MPB), is at point B12. The difference between the socially optimal output and the market equilibrium output is the deadweight loss, which is shown by the shaded area. The socially optimal output is QS1U1B12, which is greater than the market equilibrium output QS1U1B11. Therefore, the correct answer is B, as it represents the socially optimal output level.

Exhibit 30-4 ​ Refer to Exhibit 30-4. If a Negative Externality Exists, Then the Externality

Exhibit 30-4 Refer to Exhibit 30-4. If a Negative Externality Exists, Then the Externality