If the equilibrium quantity is greater than the socially optimal quantity, one can infer that: a

Marketing Dec 25, 2020

If the equilibrium quantity is greater than the socially optimal quantity, one can infer that:

a. the supply curve for the activity is below the socially optimal supply curve.

b. the production of this good has a positive externality.

c. the production of this good has no externality.

d. the demand curve for the activity is above the socially optimal demand.

e. the production of this good has a negative externality.

Expert Solution

The correct option is e. The production of this good has a negative externality.

In the case of the negative externality, there is an over-production of the product in the market at the prevailing market price. Also, it is given that the market equilibrium supply is higher than the socially desirable level; therefore, the given product production can be categorized as a negative externality.

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