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. Let Q_MARKET represent the equilibrium quantity of gasoline, and let Q_OPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?

Question

Quizplus · Accepted Answer

The socially optimal quantity is where the social cost equals the value to consumers. Since the social cost of the 400th gallon is $3.12 and the value to consumers is $3.23, the socially optimal quantity is greater than 400 gallons. The market equilibrium quantity is where the private cost equals the value to consumers. Since the private cost of the 400th gallon is $2.83 and the value to consumers is $3.23, the market equilibrium quantity is less than 400 gallons. Therefore, the correct answer is A) 400 < Q_OPTIMUM < Q_MARKET.

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