Use the figure below to answer the following questions.

Figure 16.3.1
-Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve, and the market supply curve. If production is left to the private market, then the quantity produced is
A)zero.
B)Q₁.
C)Q₂.
D)Q₃.
E)between 0 and Q₁.

Question

Use the figure below to answer the following questions.
  
Figure 16.3.1
-Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social benefit curve, and the market supply curve. If production is left to the private market, then the quantity produced is
A)zero. 
B)Q₁. 
C)Q₂. 
D)Q₃. 
E)between 0 and Q₁.

Quizplus · Accepted Answer

If production is left to the private market, the quantity produced will be where the market supply curve intersects the marginal private benefit curve, which is at Q₂. At this level of production, the marginal private benefit equals the marginal private cost, but the marginal social benefit is higher than the marginal private benefit, indicating that there is a positive externality present. Therefore, Q₂ is not the socially optimal level of production, but it is where the market will naturally settle.

Use the Figure Below to Answer the Following Questions