Question 8 (marks 12)

Consider the following graph where a negative externality is present. Since there is no positive externality, social benefit (MSB) and private benefit (MPB) are equal.

Refer to the above graph, answer the following questions:

Which area represent the external cost?

Answer:

• Which level of production (Quantity) is better to produce when there is negative externality? Explain.

choose any grapgh