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Figure: Correcting for Market Failure
-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. Economists argue that in an unregulated private market, _____ is produced. In the figure, the supply curve (S₁) reflects _____ marginal cost.

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Figure: Correcting for Market Failure

-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. Economists argue that in an unregulated private market, _____ is produced. In the figure, the supply curve (S₁) reflects _____ marginal cost.

Quizplus · Accepted Answer

In an unregulated private market with external costs, too much of the good is produced because the supply curve reflects only the private marginal cost, not the external costs.

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