-Refer to the above figure. The market equilibrium quantity is Q1. Point Q2 represents the optimal amount of production. This indicates that there is
A) a public good which should be produced.
B) regressive taxation of the product.
C) a positive externality.
D) a negative externality.

Question

-Refer to the above figure. The market equilibrium quantity is Q1. Point Q2 represents the optimal amount of production. This indicates that there is
A) a public good which should be produced. 
B) regressive taxation of the product. 
C) a positive externality. 
D) a negative externality.

Quizplus · Accepted Answer

When the optimal amount of production (Q2) is greater than the market equilibrium quantity (Q1), it suggests that the social benefits of producing the good exceed the private benefits captured in the market. This discrepancy is indicative of a positive externality, where additional benefits to society are not accounted for in the market transactions.

-Refer to the Above Figure