Consider the market illustrated in the figure to the right. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose the consumption of this good creates a positive externality. In turn, the social benefit from consumption is represented by demand curve D₂. Show how the externality affects market efficiency. Use the triangle drawing tool to shade in the new economic surplus (New surplus) or the deadweight loss (Deadweight loss) created by the positive externality. Properly label this shaded area. Carefully follow the instructions above, and only draw the required objects. Price Q S₁ X D₁ D₂ Quantity Q
Consider the market illustrated in the figure to the right. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose the consumption of this good creates a positive externality. In turn, the social benefit from consumption is represented by demand curve D₂. Show how the externality affects market efficiency. Use the triangle drawing tool to shade in the new economic surplus (New surplus) or the deadweight loss (Deadweight loss) created by the positive externality. Properly label this shaded area. Carefully follow the instructions above, and only draw the required objects. Price Q S₁ X D₁ D₂ Quantity Q
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 10QP
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Transcribed Image Text:Consider the market illustrated in the figure to the right. Supply curve S, represents the private
cost of production and demand curve D₁ represents the private benefit from consumption.
Suppose the consumption of this good creates a positive externality. In turn, the social benefit
from consumption is represented by demand curve D₂. Show how the externality affects market
efficiency.
Use the triangle drawing tool to shade in the new economic surplus (New surplus) or the
deadweight loss (Deadweight loss) created by the positive externality. Properly label this shaded
area.
Carefully follow the instructions above, and only draw the required objects.
Price
Quantity
S₁
D₁ D₂
Q
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