Refer to Scenario 10-1. Let Q MARKET represent the equilibrium quantity of gasoline, and let Q OPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?A) 400

Question

Refer to Scenario 10-1. Let Q MARKET  represent the equilibrium quantity of gasoline, and let Q OPTIMUM  represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?A) 400  < Q OPTIMUM   < Q MARKET B) Q OPTIMUM   < 400  < Q MARKET C) Q MARKET   < 400  < Q OPTIMUM D) Q OPTIMUM   < Q MARKET   < 400

Cailin Curler · Accepted Answer

Final Answer : A, Explanation :  The socially optimal quantity is where the social cost equals the value to consumers. Since the social cost of the 400th gallon is $3.12 and the value to consumers is $3.23, the socially optimal quantity is greater than 400 gallons. The market equilibrium quantity is where the private cost equals the value to consumers. Since the private cost of the 400th gallon is $2.83 and the value to consumers is $3.23, the market equilibrium quantity is less than 400 gallons. Therefore, the correct answer is A) 400  < Q OPTIMUM   < Q MARKET .

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