The figure given below shows the demand and supply curves of steel. S p is the private supply curve, and S s is the social supply curve that includes both private costs and external costs.Figure 13.2

-According to Figure 13.2:

Question

The figure given below shows the demand and supply curves of steel. S p is the private supply curve, and S s is the social supply curve that includes both private costs and external costs.Figure 13.2
 
-According to Figure 13.2:

Quizplus · Accepted Answer

Point a represents the private equilibrium where the demand and private supply curve intersect. Point b is the socially efficient equilibrium where the demand curve intersects with the social supply curve. The social supply curve includes both private costs and external costs, so the socially efficient equilibrium takes into account the external costs and leads to a lower quantity and higher price compared to the private equilibrium. Thus, both points cannot be socially efficient. Choice A and B are incorrect. Choice C is incorrect because point b represents the social equilibrium, not the private equilibrium. Choice E is incorrect because it assumes external costs are zero, which is not true in this case.

The Figure Given Below Shows the Demand and Supply Curves