Figure 15.5 Figure 15.5 shows a market with an externality.The current market equilibrium output of Q 1 is not the economically efficient output.The economically efficient output is Q 2 . -Refer to Figure 15.5.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case, diagram shows A)the effect of a subsidy granted to producers of a good. B)the effect of an excess demand in a market. C)the effect of a positive externality in the consumption of a good. D)the effect of a negative externality in the consumption of a good.

Question

Quizplus · Accepted Answer

The shift from a current market equilibrium output to a higher, economically efficient output due to an externality indicates the presence of a positive externality in consumption. This is because the social benefits of consuming the good are higher than the private benefits, leading to an underproduction of the good at the initial equilibrium.

Figure 155 Figure 15