Question

If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

Answer 1

Hello attached below is the complete question

D1 represents the demand curve reflecting private benefits ( c )

Step-by-step explanation:

The effects of an externality is positive( shift of the demand curve to the right ) when the production of goods and service has a positive effect on the consumers ( people that are not involved in the production process ). this positive effect will lead to an increase in quantity demanded as well from consumers.

The curve ( D1 ) does not represent the social benefits for the consumers but represents the demand curve reflecting private benefits,