The Following Questions Refer to the graph below.
-Assume that the current market demand and supply curves for Z are D₁ and S₁ and there are positive social spillovers associated with the production of Z.Which curve could represent the MSC curve for Z?

Question

The Following Questions Refer to the graph below.

-Assume that the current market demand and supply curves for Z are D₁ and S₁ and there are positive social spillovers associated with the production of Z.Which curve could represent the MSC curve for Z?

Quizplus · Accepted Answer

The MSC curve represents the marginal social cost of production, which includes the private cost plus any externalities (positive or negative) associated with production. In this case, the question states that there are positive social spillovers associated with the production of Z, meaning that the MSC curve would be higher than the supply curve. The only curve that is higher than the supply curve is S₂, so that is the best choice.

The Following Questions Refer to the Graph Below