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Suppose the marginal benefits and marginal costs of tire production in the U.S. are modeled as follows, where Q is in millions:
MSB = 12 - 0.4Q MPB = 12 - 0.3Q MSC = MPC = 2 + 0.1Q
-Based on this model, it is apparent that there is a

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Quizplus · Accepted Answer

The difference between the marginal social benefit (MSB) and the marginal private benefit (MPB) is 0.1Q, indicating a consumption externality measured as MEB = -0.1Q. This shows that the social benefits are less than the private benefits by an amount that depends on the quantity produced, which is characteristic of a consumption externality.

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