Figure 10-9
-Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point
A)Q2 to point Q3.
B)Q3 to point Q2.
C)Q4 to point Q5.
D)Q5 to point Q4.

Question

Figure 10-9   
-Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point
A)Q2 to point Q3. 
B)Q3 to point Q2. 
C)Q4 to point Q5. 
D)Q5 to point Q4.

Quizplus · Accepted Answer

Panel (b) illustrates the market for antibiotics without government intervention, where the equilibrium quantity is Q2. However, due to the negative externality of antibiotic resistance, the social cost of using antibiotics is higher than the private cost. Therefore, the socially optimal quantity of antibiotics is lower than Q2, at point Q3, where marginal social cost equals marginal social benefit. A government policy that internalizes the externality, such as a tax or a cap-and-trade system, would reduce the quantity of antibiotics used from Q2 to Q3. Therefore, the correct answer is B, as it shows the movement from a higher quantity (Q3) to a lower quantity (Q2) due to government intervention.