Question

refer to the diagram to the right which shows a market with a negative externality. the efficient output level is
oa. o
ob. o - o
oc. o
od. o

Explanation:

In a market with a negative externality, the efficient output level occurs where the marginal social cost (\(MC_{social}\)) equals the marginal social benefit (which is represented by the demand curve \(D\) in a standard setup). The supply curve \(S_2 = MC_{social}\) intersects the demand curve \(D\) at the quantity \(Q_e\). This is because the \(MC_{social}\) accounts for both the private costs (represented by \(S_1=MC_{private}\)) and the external costs. At \(Q_e\), the net - social welfare is maximized. Output levels above \(Q_e\) (like \(Q_b\)) have \(MC_{social}>MB\) (marginal social benefit, from demand), and output levels below \(Q_e\) do not fully exploit the potential where \(MB > MC_{social}\).

Answer:

C. \(Q_e\)