Figure 11.4 Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.The deadweight loss due to the externality is represented by the area -.

Question

Figure 11.4  Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.The deadweight loss due to the externality is represented by the area -.

Quizplus · Accepted Answer

The deadweight loss due to the externality is the difference between the socially optimal level of output and the level of output at the equilibrium. In this case, the socially optimal level of output is where the marginal social cost (MSC) intersects the demand curve at point A, while the equilibrium level of output is where the marginal private cost (MPC) intersects the demand curve at point B. The deadweight loss is represented by the shaded area ABF, which is the difference between the areas under the MSC and MPC curves between points A and B. Therefore, choice B is the correct answer.

Figure 114 Figure 11