Figure 10-2. The graph depicts the market for plastic.
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?
A)200 units
B)450 units
C)500 units
D)650 units

Question

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?
A)200 units 
B)450 units 
C)500 units 
D)650 units

Quizplus · Accepted Answer

The socially optimal quantity of plastic is where the marginal social cost equals the marginal social benefit, which occurs at a quantity of 500 units. This is where the demand curve intersects with the marginal social cost curve. At any quantity less than 500 units, the marginal social benefit is greater than the marginal social cost, so there is a net gain to society if more plastic is produced. At any quantity greater than 500 units, the marginal social cost is greater than the marginal social benefit, so there is a net loss to society if more plastic is produced.