The figure below shows the marginal social cost (MSC) curve, marginal private cost (MPC) curve and demand (D) curve for a good.

-Refer to the figure above. Which of the following is true in this case?

Question

The figure below shows the marginal social cost (MSC) curve, marginal private cost (MPC) curve and demand (D) curve for a good.
 
-Refer to the figure above. Which of the following is true in this case?

Quizplus · Accepted Answer

DB) The production of the good involves a negative externality. This is indicated by the fact that the social cost is higher than the private cost, meaning that there are additional costs to society not accounted for by the producer. D) The production of the good in the competitive market leads to a net increase in total surplus. Despite the negative externality, competitive markets typically increase total surplus by allocating resources efficiently, unless the externality is so severe that it significantly distorts the market outcome.

The Figure Below Shows the Marginal Social Cost (MSC) Curve