Question

refer to the diagram to the right. the dead - weight loss due to the externality is represented by the area
a. abf
b. ade
c. abc
d. abe.

Explanation:

Dead - weight loss due to externality is the loss of economic efficiency that occurs when the equilibrium is not Pareto - optimal. In a supply - demand diagram with an externality, it is the area of the triangle formed by the difference between the private and social cost/benefit curves and the quantity produced. In this case, the area 'abc' represents the dead - weight loss as it is the triangle formed by the divergence of the private and social marginal cost curves and the quantity levels.

Answer:

C. abc