-Refer to Figure 15-1. If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent? A) the market supply curve reflecting external cost B) the market supply curve reflecting implicit cost C) the market supply curve reflecting social cost D) the market supply curve reflecting private cost

Question

Quizplus · Accepted Answer

S₁ represents the market supply curve reflecting private cost, as the current equilibrium output Q₁ does not account for the externality, which means it only considers the private costs.