Question

figure 5 - 1 shows a market with an externality. the current market equilibrium output of $q_1$ is not the economically efficient output. the economically efficient output is $q_2$.
refer to figure 5 - 1. if, because of an externality, the economically efficient output is $q_2$ and not the current equilibrium output of $q_1$, what does $s_1$ represent?
the market supply curve reflecting social cost
the market supply curve reflecting private cost
the market supply curve reflecting external cost
the market supply curve reflecting implicit cost

Explanation:

In economics, when there is a negative externality, the market equilibrium (based on private costs) over - produces. The supply curve that reflects private cost (\(S_1\)) leads to the output \(Q_1\). The socially efficient output \(Q_2\) is determined by the supply curve that reflects social cost (private cost + external cost). So, \(S_1\) represents the market supply curve reflecting private cost.

Answer:

the market supply curve reflecting private cost