Question

refer to the diagram to the right which shows a market with a negative externality. the efficient output level is
a. q_d
b. q_b - q_d
c. q_b
d. q_a

Explanation:

In a market with negative externality, the efficient output level occurs where marginal social cost (MC_social) equals marginal benefit (represented by the demand - curve D). From the diagram, this is at quantity Q_a. At this point, all costs (private and external) are accounted for in the production decision.

Answer:

D. Q_a