Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000^th 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 1,000^th gallon of gasoline entails an

Question

Quizplus · Accepted Answer

The social cost of producing the 1,000th gallon of gasoline is $3.55, which is higher than the private cost of $3.10. This difference of $0.45 represents the external cost of producing the gasoline, which is not taken into account by the producer. The value to consumers of the 1,000th gallon of gasoline is $3.70, which is higher than both the private and social costs. This difference of $0.15 represents the external benefit of consuming the gasoline, which is not taken into account by the producer. Therefore, the production of the 1,000th gallon of gasoline entails an external cost of $0.45.

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