E) the high salaries enjoyed by professional athletes. MC S MCo MC2 Po DzMBo MBI

Question

E) the high salaries enjoyed by professional athletes. MC S MCo MC2 Po DzMBo MBI Quantity FIGURE 16-1 58) Refer to Figure 16-1. Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A. If the social marginal costs and social marginal benefits are represented by MC1 and MBo, respectively, then there exists A) a positive external benefit. B) no externalities at all. C) a negative external cost. D) a positive external cost. E) a negative external benefit. 17

Explanation / Answer

Answer

Option c

the MC1 is social marginal cost and that is left of the MC0, the MC0 is private cost where MC1=MC0+external cost, the negative externality shifts MC curve to left so it is negative eternality.

also, the market equilibrium is at MC0=MB0= point A and the quantity is more than point B where MB0=MC1 so there is the negative externality

the positive externality shifts MB to right.

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