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.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does D₁ represent? A)The demand curve reflecting external benefits B)The demand curve reflecting social benefits C)The demand curve reflecting private benefits D)The demand curve reflecting the sum of private and social benefits

Question

Quizplus · Accepted Answer

D₁ represents the demand curve reflecting private benefits, as it only takes into account the private costs and benefits of the buyers and sellers in the market. It does not reflect any externalities.

Figure 155 Figure 15