Figure 10-6
-Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?
A)P
B)P'
C)Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price.
D)Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties.

Question

Figure 10-6 
-Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?
A)P 
B)P' 
C)Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price. 
D)Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties.

Quizplus · Accepted Answer

The equilibrium price is the intersection of the supply and demand curves, which occurs at point E where the price is P. P' represents the socially optimal price when considering the negative externality, but in terms of market equilibrium, the price is P.

Figure 10-6 -Refer to Figure 10-6. Which Price Represents the Equilibrium Price