Figure 15.1 Figure 15.1 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 15.1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₂ represent?

Question

Figure 15.1

Figure 15.1 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 15.1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₂ represent?

Quizplus · Accepted Answer

S₂ represents the market supply curve reflecting social cost, which takes into account the cost of the externality.

Figure 151 Figure 15