-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. This indicates that there is
A)a public good which should be produced.
B)regressive taxation of the product.
C)a positive externality.
D)a negative externality.

Question

-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. This indicates that there is
A)a public good which should be produced. 
B)regressive taxation of the product. 
C)a positive externality. 
D)a negative externality.

Quizplus · Accepted Answer

The optimal amount of production being greater than the market equilibrium quantity (Q₂ > Q₁) suggests a positive externality, where the social benefit exceeds the private benefit, leading to underproduction in the market.

-Refer to the Above Figure