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.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

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.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

Quizplus · Accepted Answer

S₁ represents the market supply curve reflecting private cost, as it is the current equilibrium output without accounting for the externality, which is why the efficient output is different.

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