Use the following figure to answer the question : Figure 20-2 : shows the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits.
-In Figure 20-2,the price level when the efficient output is being produced is _____ than the price level when the market equilibrium output is being produced by _____.
A)less;$8
B)more;$4
C)less;$3
D)more;$3

Question

Use the following figure to answer the question : Figure 20-2 : shows the competitive supply curve of a commodity is given by S 1 ,the private marginal benefit curve is D 1 ,the marginal social benefit curve is D 2 ,and the MB E curve reflects the marginal external benefits. 
-In Figure 20-2,the price level when the efficient output is being produced is _____ than the price level when the market equilibrium output is being produced by _____.
A)less;$8 
B)more;$4 
C)less;$3 
D)more;$3

Quizplus · Accepted Answer

The efficient output is where MSB=MSE. We can see that this occurs at point B1 where the price level is $5. The market equilibrium output is where SMB=PMC. We can see that this occurs at point B0 where the price level is $8. Therefore, the price level when the efficient output is being produced is less than the price level when the market equilibrium output is being produced by $3. The correct answer is C, less; $3.

Use the Following Figure to Answer the Question : Figure