3. А)Priceand CostAQ, 02QuantityAnalyzing the prior graph which type of externality is this? Which line is the private and which is thepublic? What quantity does the private market produce, which quantity does the public want? Nowgive three (3) examples of this type of externality.

Answered: 3. A) Price and Cost 0, 02 Quantity…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter5: Difficult Cases For The Market And The Role Of Government

Section: Chapter Questions

Problem 5CQ

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3. А)
Price
and Cost
A
Q, 02
Quantity
Analyzing the prior graph which type of externality is this? Which line is the private and which is the
public? What quantity does the private market produce, which quantity does the public want? Now
give three (3) examples of this type of externality.

Expert Solution

Step 1

The graph in the question is showing positive externality. Positive externality or spillover benefit is an advantage that is derived by a third party when he/she is not contributing anything. Positive externality is generated by merit goods for which receivers do not pay due to which it leads to underproduction and hence, market inefficiency.

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