Refer to the Supply and Demand Graph for a Public

question 119

Multiple Choice

Refer to the supply and demand graph for a public good.Which one of the following statements is correct?

• A) The supply curve reflects the marginal cost and the demand curve reflects the marginal benefit of this public good.
• B) The demand curve reflects the marginal cost and the supply curve reflects the marginal benefit of this public good.
• C) There will be an overallocation of resources at output level Q₁.
• D) There will be an underallocation of resources at output level Q₃.

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Definitions:

Negative Externality

A cost that is suffered by a third party due to an economic transaction, where the cost is not reflected in the transaction's final price.

Marginal Social Cost

The total cost society bears for the production of an additional unit of a good, including both direct costs to the producer and external costs to others.

Efficient Output

The level of production at which a company or economy can produce the maximum amount of goods at the lowest cost.

Lawn Maintenance

The routine care and upkeep of a lawn, including mowing, watering, fertilization, weed control, and other activities to ensure healthy growth and appearance.