Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000 t h gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an
A) external cost of $0.15.
B) external cost of $0.45.
C) external benefit of $0.15.
D) external benefit of $0.45.

Question

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000 t h  gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an
A) external cost of $0.15.
B) external cost of $0.45.
C) external benefit of $0.15.
D) external benefit of $0.45.

Quizplus · Accepted Answer

The external cost is calculated by the difference between the social cost and the private cost, which is $0.45 ($3.55 - $3.10).

Scenario 10-1 The Demand Curve for Gasoline Slopes Downward and the Supply