-Exhibit N-3 depicts a market showing the demand curve for a good and two supply curves, one reflecting the industry's private costs; the other reflecting the costs of resources to society producing the good. It is clear from this representation of the marketthat
A) there is a free-rider condition
B) there are positive externalities in this market
C) external costs exist in this industry
D) only one firm is producing the good
E) the demand curve incorporates both private and social benefits

Question

-Exhibit N-3 depicts a market showing the demand curve for a good and two supply curves, one reflecting the industry's private costs; the other reflecting the costs of resources to society producing the good. It is clear from this representation of the marketthat
A) there is a free-rider condition 
B) there are positive externalities in this market 
C) external costs exist in this industry 
D) only one firm is producing the good 
E) the demand curve incorporates both private and social benefits

Quizplus · Accepted Answer

The presence of two supply curves, one for private costs and another for societal costs, indicates that there are external costs not accounted for by the private market, hence option C is correct.

-Exhibit N-3 Depicts a Market Showing the Demand Curve for a Good