Table 10-2

$$\begin{array} { | c | c | c | c | }
\hline \begin{array} { c }
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c }
\text { Private Value } \
\text { (Dollars) }
\end{array} & \begin{array} { c }
\text { Private Cost } \
\text { (Dollars) }
\end{array} & \begin{array} { c }
\text { Social Value } \
\text { (Dollars) }
\end{array} \
\hline 1 & 51 & 45 & 57 \
\hline 2 & 48 & 48 & 54 \
\hline 3 & 45 & 51 & 51 \
\hline 4 & 42 & 54 & 48 \
\hline 5 & 39 & 57 & 45 \
\hline 6 & 36 & 60 & 42 \
\hline
\end{array}$$
-Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially optimal level of output?
A)$5
B)$8
C)$6
D)$11

Question

Table 10-2
​
​
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Private Value } \
\text { (Dollars) }
\end{array} & \begin{array} { c } 
\text { Private Cost } \
\text { (Dollars) }
\end{array} & \begin{array} { c } 
\text { Social Value } \
\text { (Dollars) }
\end{array} \
\hline 1 & 51 & 45 & 57 \
\hline 2 & 48 & 48 & 54 \
\hline 3 & 45 & 51 & 51 \
\hline 4 & 42 & 54 & 48 \
\hline 5 & 39 & 57 & 45 \
\hline 6 & 36 & 60 & 42 \
\hline
\end{array}$$ ​
-Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially optimal level of output?
A)$5
B)$8
C)$6
D)$11

Quizplus · Accepted Answer

The socially optimal level of output is where the social value equals the private cost, which occurs at 3 units (Social Value = $51, Private Cost = $51). The market equilibrium without intervention would be at 2 units, where private value equals private cost ($48). To move from the market equilibrium to the socially optimal level, the subsidy should bridge the gap between the private value and the social value at the third unit, which is $51 (Social Value) - $45 (Private Value) = $6.

Table 10-2 ​ ​ ​ -Refer to Table 10-2

Table 10-2

-Refer to Table 10-2