http://oi40.tinypic.com/hrn9qu.jpg 14. In the figure above, assume that Dm and D

Question

http://oi40.tinypic.com/hrn9qu.jpg

14. In the figure above, assume that Dm and Ds represent the market-and social-demand curves, respectively. The market-determined equilibrium quantity and price will be, respectively,

a. Q2 and P1.
b. Q1 and P1.
c. Q2 and P2.
d. Q1 and P2.
e. Q2 and P3.

15. In the figure above, assume that Dm and Ds represent the market- and social-demand curves, respectively. Which of the following is an accurate conclusion?

a. The external costs associated with providing the good are equal to P2 per unit.
b. The external benefits associated with providing the good are equal to P2 per unit.
c. The external benefits associated with providing the good are equal to P3 minus P2 per unit.
d. The external costs associated with providing the good are equal to P3 minus P1.
e. The external benefits associated with providing the good are equal to P3 minus P1 per unit.

Explanation / Answer

14. b

Q1 and P2. The market will be at equilibrium at the point where Market supply = Market Demand.

15. d

There are external positive social costs associated with the good. We can see that the demand curve is shifted above by the value P3 - P1. This is equal to the externality.

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