Figure 5-1

Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent?
A)the market supply curve reflecting external cost
B)the market supply curve reflecting implicit cost
C)the market supply curve reflecting marginal social cost
D)the market supply curve reflecting marginal private cost

Question

Figure 5-1
  
Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent?
A)the market supply curve reflecting external cost 
B)the market supply curve reflecting implicit cost 
C)the market supply curve reflecting marginal social cost 
D)the market supply curve reflecting marginal private cost

Quizplus · Accepted Answer

S₁ represents the market supply curve reflecting marginal private cost, as it is the supply curve before accounting for the externality that causes the efficient output to be Q₂.

Figure 5-1 Figure 5-1 Shows a Market with an Externality. the Current