Question

review the table below, which shows the quantity supplied and quantity demanded for a private good. price quantity supplied quantity demanded $1 3 7 $3 4 6 $5 5 5 $7 6 4 assume the market shown is perfectly competitive and has social costs that exceed private costs. if these social costs were reflected in the market, how many goods would be exchanged?

Answer 1

When social costs are reflected in the perfectly competitive market, the equilibrium price would increase and the equilibrium quantity supplied would decrease compared to the scenario where only private costs are considered. In this example, the equilibrium would be at a price of $12 and a quantity of four units.

Step-by-step explanation:

The student's question involves understanding how social costs affect the equilibrium price and quantity of goods exchanged in a perfectly competitive market. The table provided shows various prices along with the corresponding quantity supplied and demanded.

To determine how many goods would be exchanged if social costs were reflected in the market, we would look at the equilibrium that includes these external costs. Based on the instructions provided, if the externality is included, we see that the equilibrium price would be higher, and the quantity supplied would be lower than when only private costs are considered.

Given the table with the hypothetical social costs included, we would see a reduced equilibrium quantity exchanged, which in this scenario is indicated to be four units at a price of $12. This outcome reflects the assumption that if social costs are internalized in the market, the quantity of the good that is supplied would decrease as suppliers would need to cover these higher costs, leading to a higher equilibrium price and a lower equilibrium quantity.