Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 400th gallon of gasoline entails the following:
  a private cost of $2.83;
  a social cost of $3.12;
  a value to consumers of $3.23.
-Refer to Scenario 10-1. The production of the 400th gallon of gasoline entails an
A)external cost of $0.11.
B)external cost of $0.29.
C)external benefit of $0.11.
D)external benefit of $0.29.

Question

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 400th gallon of gasoline entails the following:
   a private cost of $2.83;
   a social cost of $3.12;
   a value to consumers of $3.23.
-Refer to Scenario 10-1. The production of the 400th gallon of gasoline entails an
A)external cost of $0.11.
B)external cost of $0.29.
C)external benefit of $0.11.
D)external benefit of $0.29.

Quizplus · Accepted Answer

The external cost is the difference between the social cost and the private cost, which is $3.12 - $2.83 = $0.29.

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