-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is the socially optimal quantity. Point E indicates that currently there is
A) a negative externality.
B) a positive externality.
C) a public good.
D) a positive externality with subsidy.

Question

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is the socially optimal quantity. Point E indicates that currently there is 
A) a negative externality. 
B) a positive externality. 
C) a public good. 
D) a positive externality with subsidy.

Quizplus · Accepted Answer

A negative externality exists when the social cost of a good or service exceeds the private cost, leading to overproduction or consumption compared to the socially optimal level. Point E indicates a situation where the market equilibrium quantity (X) is greater than the socially optimal quantity (X*), suggesting the presence of a negative externality.

-In the Above Figure, Market Equilibrium at Point E Yields