Exhibit 31-1 -Refer to Exhibit 31-1.This Graph Represents a Negative Externality Situation.Given

Multiple Choice

Exhibit 31-1

-Refer to Exhibit 31-1.This graph represents a negative externality situation.Given this,which of the two curves,X or Y,represents marginal social costs and why?

A) Curve X, because if there is a negative externality, external costs are associated with it: social costs = external costs + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.
B) Curve Y, because if there is a negative externality, negative external costs are associated with it: social costs = negative external costs + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.
C) Curve X, because if there is a negative externality, external benefits are associated with it: social costs = external benefits + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve.
D) Curve Y, because if there is a negative externality, negative external benefits are associated with it: social costs = negative external benefits + private costs, therefore the marginal social cost curve must lie below the marginal private cost curve.