Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The efficient output level is
A)Qd.
B)Qb.
C)Qa.
D)Qb - Qd.

Question

Figure 5-2 shows a market with a negative externality.
-Refer to Figure 5-2.The efficient output level is
A)Qd. 
B)Qb. 
C)Qa. 
D)Qb - Qd.

Quizplus · Accepted Answer

The efficient output level is where the marginal social cost (MSC) equals the marginal social benefit (MSB), which is at point Qa in the diagram. This is because at this point, the MSC curve intersects with the demand curve (which represents the MSB) at the same level of output. Therefore, the best choice is to produce at Qa, which maximizes total social welfare. Producing at a higher or lower level of output would result in a deadweight loss and reduce social welfare.

Figure 5-2 Shows a Market with a Negative Externality