Chapter 75, Problem 1MCQ

To determine

The demand curve when there are no external benefits.

Answer to Problem 1MCQ

From the available options, the correct option is MSB.

Explanation of Solution

When there are no external benefits, the demand curve would be MSB (marginal social benefit) because, in the case of external benefits, the marginal social benefit is higher as compared to private benefit. Whereas, MPC (marginal propensity to consume) curve shows a flat demand curve and MEB indicates the external benefit. S is the supply curve, not the demand curve, and the demand curve represents the marginal benefit, which means it cannot be a marginal social cost curve.

Therefore, the correct option is a (MSB)

Economics Concept Introduction

Introduction: The benefits which are obtained by the third party who is not actually buying, selling, or consuming the good are called external benefits. For example, using a vehicle to travel reduces the congestion on the road because it provides benefit to other drivers so that they can drive quickly and safely.