(Figure: Market 3) Use the graph to answer the question.
The graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to control this externality?

Question

Quizplus · Accepted Answer

The government would want to set a quota at the socially optimal quantity, where marginal social cost equals marginal social benefit. This occurs at a quantity of 8, where the supply and demand curves intersect. Setting a quota at this quantity would limit the quantity demanded to the socially optimal level, reducing the negative externality. Quotas set at any other quantity would either fall short of or exceed the socially optimal level.

(Figure: Market 3) Use the Graph to Answer the Question