Chapter 76, Problem 1FRQ

To determine

The correctly labeled graph for soccer clinics that shows the marginal social cost, the marginal social benefit, each resident's marginal private benefit, the quantity of clinics that Austin would purchase if he were the only resident, and the number of clinics that Ally would purchase if she were the only resident, also the optimal quantity of clinics.

Explanation of Solution

The graph for the number of soccer clinics:

  

The vertical axis of the graph represents the marginal social cost, benefit, and price of soccer clinics and the horizontal axis shows the number of soccer clinics.

The marginal social cost curve is horizontal at the proof of $80 and the marginal social benefit curve is in a downward slope up to the price of $60 where the quantity is 10 and then starts constantly by coinciding with MPB of Austin.

Here, the marginal social benefit curve starts at the price of $160 where the quantity of clinics is zero. Therefore, the quantity of Austin is labeled with QAustin where the quantity is zero because the marginal social cost is more than the marginal private benefit of Austin for each soccer clinic.

The quantity of Ally is found at the point of QAlly where the marginal social cost curve and marginal private benefit curve of Ally intersect. It is shown on the horizontal axis.

The optimal quantity is found at the point where marginal social cost and marginal social benefit intersect and this point is shown on the horizontal axis which is denoted as QOptimal.

Economics Concept Introduction

Introduction: Externality problems such as pollution refer to the fundamental economic policy problems while firms do not internalize the indirect costs or indirect benefits from any of their economic transactions in the market. The quantity where all the costs and benefits are accounted for is called socially optimal quantity.