Figure 11.7 Figure 11.7 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 11.7.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₁ represent?

Question

Figure 11.7

Figure 11.7 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 11.7.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₁ represent?

Quizplus · Accepted Answer

D₁ represents the demand curve reflecting private benefits, which does not take into account any externalities.

Figure 117 Figure 11