Figure 5-1 Figure 5-1 Shows a Market with an Externality

question 154

Multiple Choice

Figure 5-1 Figure 5-1 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 5-1. 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:

Molecules

Groups of atoms bonded together, representing the smallest fundamental units of a chemical compound that can take part in a chemical reaction.

Auditory Canal

Short tunnel that runs from the pinna to the eardrum.

Eardrum

A thin membrane that separates the outer ear from the middle ear and vibrates in response to sound waves, aiding in the process of hearing.

Pinna

The visible part of the ear that resides outside of the head, which plays a role in capturing sound waves and directing them into the ear canal.