FIGURE 16-1
-Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₀ and MB₁,respectively,then there exists

Question

Quizplus · Accepted Answer

Since the social marginal benefit curve (MB₁) lies above the demand curve (D1), there is an external benefit present in the market. This means that the private market equilibrium (point A) results in a lower level of output and price than the socially optimal level. To achieve the socially optimal level of output, the market would have to produce at a point where the social marginal benefit equals the social marginal cost (not shown in the diagram).

FIGURE 16-1 -Refer to Figure 16-1.Suppose That the Perfectly Competitive Market with Market