Figure 5-1 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 5-1.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S1 represent?
A)the market supply curve reflecting external cost
B)the market supply curve reflecting implicit cost
C)the market supply curve reflecting marginal social cost
D)the market supply curve reflecting marginal private cost

Question

Figure 5-1 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 5-1.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S1 represent?
A)the market supply curve reflecting external cost 
B)the market supply curve reflecting implicit cost 
C)the market supply curve reflecting marginal social cost 
D)the market supply curve reflecting marginal private cost

Quizplus · Accepted Answer

S1 represents the market supply curve reflecting marginal private cost, as it does not account for the external costs that lead to the economically efficient output being Q2 instead of the current equilibrium output Q1.

Figure 5-1 Shows a Market with an Externality