Question

when an externality exists, what combination of price and quantity does the private market yield?
a p₀q₁
b p₁q₁
c p₀q₀
d p₁q₀

Explanation:

In a private market with an externality, the private market equilibrium is determined by the intersection of the demand curve and the private cost curve (\(S_1\)). From the graph, the private cost curve (\(S_1\)) intersects the demand curve at price \(P_1\) and quantity \(Q_1\), which corresponds to option B.

Answer:

B. \(P_1Q_1\)