Figure 5-5 Figure 5-5 Shows a Market with an Externality

Multiple Choice

Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-5. If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does D₁ represent?

A) the demand curve reflecting external benefits
B) the demand curve reflecting social benefits
C) the demand curve reflecting private benefits
D) the demand curve reflecting the sum of private and social benefits