In the figure given below,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits.
-In Figure 20-2,the price level when the efficient output is being produced is _____ than the price level when the market equilibrium output is being produced by _____.
A)less;$8
B)more;$4
C)less;$3
D)more;$3

Question

In the figure given below,the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits. 
-In Figure 20-2,the price level when the efficient output is being produced is _____ than the price level when the market equilibrium output is being produced by _____.
A)less;$8 
B)more;$4 
C)less;$3 
D)more;$3

Quizplus · Accepted Answer

The efficient output is where marginal social benefit (MSB) equals marginal social cost (MSC), which occurs at point B1 on the graph. At this point, the price level is $6. However, in the market equilibrium, the output is at point B0, where the private marginal benefit (PMB) equals the marginal private cost (PMC). This occurs at a lower quantity and price level of $3. Therefore, the price level when the efficient output is being produced is less than the price level when the market equilibrium output is being produced by $3.

In the Figure Given Below,the Competitive Supply Curve of a Commodity