Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000 t h gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?
A) 1,000

Question

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000 t h  gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?
A) 1,000 < QOPTIMUM < QMARKET
B) QOPTIMUM < 1,000 < QMARKET
C) QMARKET < 1,000 < QOPTIMUM
D) QOPTIMUM < QMARKET < 1,000

Quizplus · Accepted Answer

The socially optimal quantity is where the social cost equals the value to consumers. The private cost is less than the social cost, so the market equilibrium quantity will be greater than the socially optimal quantity.

Scenario 10-1 The Demand Curve for Gasoline Slopes Downward and the Supply