Figure 4-8 Figure 4-8 shows a market with an externality.The current market equilibrium output of Q 1 is not the economically efficient output.The economically efficient output is Q 2 . -Refer to Figure 4-8.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₂ represent? A)the market supply curve reflecting private cost B)the market supply curve reflecting social cost C)the market supply curve reflecting external cost D)the market supply curve reflecting implicit cost

Question

Quizplus · Accepted Answer

S₂ represents the market supply curve reflecting social cost, which takes into account the external cost imposed on society. This curve is above the market supply curve reflecting private cost (which does not take into account the external cost), and reflects the true cost to society of producing the good.

Figure 4-8 Figure 4-8 Shows a Market with an Externality.The