Refer to the above supply and demand graph for a public good.Which one of the following statements is correct? A) The supply curve reflects the marginal cost and the demand curve reflects the marginal benefit of this public good. B) The demand curve reflects the marginal cost and the supply curve reflects the marginal benefit of this public good. C) There will be an overallocation of resources at output level Q₁. D) There will be an underallocation of resources at output level Q₃.

Question

Quizplus · Accepted Answer

In a market for public goods, the supply curve reflects the marginal cost of providing the good, while the demand curve reflects the marginal benefit to society. Therefore, option A is correct. Option B is incorrect as it has reversed the roles of the supply and demand curves. Option C and D are incorrect as there is no overallocation or underallocation of resources in the graph shown.

Refer to the Above Supply and Demand Graph for a Public