Figure 5-3
illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?
a.
Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency.
b.
Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency.
c.
The competitive private market outcome is consistent with the conditions for economic efficiency.
d.
The good will tend to be oversupplied relative to the conditions for economic efficiency.
a
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