Figure 11-7 Figure 11-7 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 11-7.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₁ represent?

Question

Figure 11-7

Figure 11-7 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 11-7.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₁ represent?

Quizplus · Accepted Answer

D₁ represents the demand curve reflecting private benefits because it represents the willingness of consumers to pay for the output based on their own private benefits, without considering any externalities.

Figure 11-7 Figure 11-7 Shows a Market with an Externality