Figure 4-15 Figure 4-15 Shows a Market with an Externality.The Current Market

question 149

Multiple Choice

Figure 4-15

Figure 4-15 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂.
-Refer to Figure 4-15.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₂ represent?

• A)the market supply curve reflecting private cost
• B)the market supply curve reflecting social cost
• C)the market supply curve reflecting external cost
• D)the market supply curve reflecting implicit cost

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or commodity, usually intended to protect consumers.

Purely Competitive Market

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information.

Surplus

The situation in which the quantity of a good or service supplied exceeds the quantity demanded at the current price.

Federal Food Distribution

Programs and services run by the government to distribute food to the needy, schools, and other institutions to ensure food security.