If there is a negative externality associated with the production of chewing gum, then the most efficient allocation of resources in gum production occurs at the intersection of the
A) demand curve and the private cost curve
B) demand curve and the externality curve
C) demand curve and the social cost curve
D) social cost curve and the private cost curve
E) private cost curve and the externality cost curve

Question

Quizplus · Accepted Answer

The most efficient allocation of resources occurs at the intersection of the demand curve and the social cost curve because the social cost curve accounts for both the private costs and the external costs associated with production, ensuring that all costs (including the negative externality) are considered in the allocation decision.

If There Is a Negative Externality Associated with the Production