Figure 10-10
-Refer to Figure 10-10. The graph represents a market in which
A)there is no externality.
B)there is a positive externality.
C)there is a negative externality.
D)The answer cannot be determined from inspection of the graph.

Question

Figure 10-10 
-Refer to Figure 10-10. The graph represents a market in which
A)there is no externality. 
B)there is a positive externality. 
C)there is a negative externality. 
D)The answer cannot be determined from inspection of the graph.

Quizplus · Accepted Answer

The graph shows that the social cost curve (including the cost of the negative externality) is above the private cost curve, indicating a negative externality. The market equilibrium occurs where the supply and demand curves intersect, at a quantity of Q1 and a price of P1. However, the socially optimal quantity is Q2, where the social cost curve intersects the demand curve. Therefore, there is an underallocation of resources in this market, and the market outcome is inefficient.

Figure 10-10 -Refer to Figure 10-10. the Graph Represents a Market in a Market