Figure 11.4 Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.What is the efficient output level?

Question

Figure 11.4  Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.What is the efficient output level?

Quizplus · Accepted Answer

The efficient output level is where the marginal social cost (MSC) equals the marginal social benefit (MSB). In Figure 11.4, this occurs at point S1U1B1a, where the quantity demanded (Q) is QS1U1B1a and the price is P1. This is because at this quantity, the MSC (represented by the supply curve) intersects with the MSB (represented by the demand curve plus the external cost). Any other output level either results in a deadweight loss (if quantity is less than QS1U1B1a) or an inefficiently high level of pollution (if quantity is greater than QS1U1B1a). Therefore, the efficient output level is QS1U1B1a.

Figure 114 Figure 11