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Figure: Correcting for Market Failure
-(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.When the government intervenes to correct for the external cost,the output will _____ from _____ to _____.
A)fall;W;R
B)increase;W;R
C)fall;R;W
D)fall;W;0

Question

Use the following to answer question:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.When the government intervenes to correct for the external cost,the output will _____ from _____ to _____.
A)fall;W;R 
B)increase;W;R 
C)fall;R;W 
D)fall;W;0

Quizplus · Accepted Answer

When the government intervenes to correct for an external cost, the output decreases from the private equilibrium (W) to the socially efficient equilibrium (R). Therefore, the correct answer is fall; R; W.

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