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5 . Market efficiency and market failure Suppose that the following graph shows a free market equilibrium, with Q; as the equilibrium quantity. /

5 . Market efficiency and market failure Suppose that the following graph shows a free market equilibrium, with Q; as the equilibrium quantity. \\ /\\ Il'a'lUNsl'l'lT'lIr \\ Supply PRICE Demand For an output level above Q3, the value of a unit to a buyer is V the cost of a unit to a seller. Suppose a rm that produces for this market is able to clump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents who have no business with the company. This scenario is characterized by v , which is an example of v

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