Exhibit 17.2

-Refer to Exhibit 17.2,which shows equilibrium in a market in the presence of an externality.The amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is _____
A)$3,000.
B)$1,000.
C)$5,000.
D)$1,600.
E)$1,400.

Question

Exhibit 17.2
 
-Refer to Exhibit 17.2,which shows equilibrium in a market in the presence of an externality.The amount by which the total social cost of producing the private equilibrium level of output exceeds the total social benefit is _____
A)$3,000. 
B)$1,000. 
C)$5,000. 
D)$1,600. 
E)$1,400.

Quizplus · Accepted Answer

The total social benefit at the private equilibrium level of output is $6,000 (quantity Q1 x market price P1). The total social cost of producing this level of output is $7,600 (private cost of production of $5,600 plus external cost of $2,000). Therefore, the amount by which the total social cost exceeds the total social benefit is $1,600 (i.e. $7,600 - $6,000).

Exhibit 17.2 -Refer to Exhibit 17.2,which Shows Equilibrium in a Market in in a Market