Figure 11-1 shows the marginal internal cost [C 1 ], the marginal total cost [C 2 ], and the demand curve [D], associated with a particular good.

-Refer to Figure 11-1. In the presence of externalities, what is the efficient price and quantity combination in the market?

Question

Figure 11-1 shows the marginal internal cost [C 1 ], the marginal total cost [C 2 ], and the demand curve [D], associated with a particular good.
 
-Refer to Figure 11-1. In the presence of externalities, what is the efficient price and quantity combination in the market?

Quizplus · Accepted Answer

The efficient price and quantity combination in the presence of externalities is determined by where the social cost (or benefit) is fully accounted for, aligning the private market activities with the overall social welfare. Without the figure, the specific details can't be analyzed, but typically, the efficient point would ensure that external costs or benefits are internalized, leading to a price and quantity that reflect the true cost to society, not just the private cost. Option B suggests a price adjustment that could account for externalities, aligning the market outcome closer to social efficiency.

Figure 11-1 Shows the Marginal Internal Cost [C1], the Marginal

Figure 11-1 Shows the Marginal Internal Cost [C₁], the Marginal