-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. The unregulated, competitive market for gasoline in Motorland
A) produces the efficient quantity of gasoline.
B) overproduces by 0.2 million gallons of gasoline a month.
C) underproduces by 0.1 million gallons of gasoline a month.
D) overproduces by 0.1 million gallons of gasoline a month.

Question

-In the figure above, S is the supply curve and D is the demand curve in the unregulated, competitive market for gasoline in Motorland. The external cost of gasoline is constant at $1.50 per gallon. The unregulated, competitive market for gasoline in Motorland
A) produces the efficient quantity of gasoline. 
B) overproduces by 0.2 million gallons of gasoline a month. 
C) underproduces by 0.1 million gallons of gasoline a month. 
D) overproduces by 0.1 million gallons of gasoline a month.

Quizplus · Accepted Answer

The external cost of $1.50 per gallon is not accounted for in the market price, leading to overproduction. The market produces more than the efficient quantity because it does not consider the external cost, resulting in overproduction by 0.1 million gallons.

-In the Figure Above, S Is the Supply Curve and D