Figure 13-3 shows a market with an externality. The current market equilibrium output of Q 1 is not the economically efficient output. The economically efficient output is Q 2 . -Refer to Figure 13 -3. Suppose the current market equilibrium output of Q₁is not the economically efficient output because of an externality. The economically efficient output is Q₂. In that case, diagram shows A) the effect of a negative externality in the consumption of a good. B) the effect of a subsidy granted to producers of a good. C) the effect of an excess demand in a market. D) the effect of a positive externality in the consumption of a good.

Question

Quizplus · Accepted Answer

The economically efficient output being higher than the current market equilibrium output suggests that the social benefits of consuming the good are higher than what is reflected in the market, indicating the presence of a positive externality in consumption.

Figure 13-3 Shows a Market with an Externality