(Solved) Exhibit 31-1Refer to Exhibit 31-1. This graph represents a negative externality situation. Given ...

Exhibit 31-1

Refer to Exhibit 31-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why?

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Curve X, because if there is a negative externality, external costs are associated with it: social costs = external costs + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.

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Curve Y, because if there is a negative externality, negative external costs are associated with it: social costs = negative external costs + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.

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Curve X, because if there is a negative externality, external benefits are associated with it: social costs = external benefits + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.

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Curve Y, because if there is a negative externality, negative external benefits are associated with it: social costs = negative external benefits + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.

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Exhibit 31-1Refer to Exhibit 31-1. This graph represents a negative externality situation. Given ...

Economics

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