Figure 11-3 Figure 11-3 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 11-3.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case,the diagram shows

Question

Figure 11-3

Figure 11-3 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 11-3.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case,the diagram shows

Quizplus · Accepted Answer

The diagram shows a negative externality in the production of a good, where the marginal private cost (MPC) is less than the marginal social cost (MSC). As a result, the market equilibrium output (Q₁) is higher than the socially optimal output (Q₂). Therefore, there is an overproduction of the good, which imposes a cost on society in the form of external costs. The economically efficient output is where the marginal social benefit (MSB) equals the marginal social cost (MSC).

Figure 11-3 Figure 11-3 Shows a Market with an Externality