Figure 15.2 Figure 15.2 shows a market with a negative externality.
-Refer to Figure 15.2.The deadweight loss due to the externality is represented by the area

Question

Figure 15.2  Figure 15.2 shows a market with a negative externality.
-Refer to Figure 15.2.The deadweight loss due to the externality is represented by the area

Quizplus · Accepted Answer

The deadweight loss due to the externality is the area between the marginal private cost curve (MPC) and the demand curve, from the socially optimal quantity to the quantity actually produced. In this case, the socially optimal quantity is where the MPC and the demand curve intersect, at a quantity of Q*. However, the market produces at a quantity of Q2, where the MPC intersects with the marginal social benefit curve (MSB). Therefore, the deadweight loss is represented by the triangle abf.

Figure 152 Figure 15