Price at a ~ a PA P₁ 0 a d e S b Q₁ Q₂ Q3 4 Collective quantity demanded and supplied Refer to the above supply and demand graph for a public good. Assume that the economy currently produces this public good at a quantity Q 3. Based on this information we can conclude that the: O a. total benefit of this public good is less than the total cost, so society should produce less of the good. O b. total benefit of this public good is greater than the total cost, so society should produce more of the good. O c. marginal benefit of this public good is greater than the marginal cost, so society should produce less of the good. Od.marginal benefit of this public good is less than the marginal cost, so society should produce less of the good.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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### Supply and Demand Graph for a Public Good

The graph illustrates the interaction between supply and demand for a public good. The vertical axis represents the price level, while the horizontal axis shows the collective quantity demanded and supplied. 

#### Key Elements:
- **Demand Curve (Dc):** Downward-sloping, indicating that as the price decreases, the quantity demanded increases.
- **Supply Curve (S):** Upward-sloping, suggesting that as the price increases, the quantity supplied increases.
- **Equilibrium Quantity (Q3):** The current production quantity of the public good.
- **Price Levels:**
  - **P1, P2, P3, P4:** Different price points at which the supply and demand curves intersect various quantities (Q1, Q2, Q3, Q4).
- **Areas Marked:** 
  - **a, b, c, d, e, f:** Represent sections of the supply and demand that can help analyze costs and benefits at different quantities and price levels.

#### Analysis Questions
Analyze the graph in relation to the production of a public good at quantity Q3. Based on this quantity:

1. **Option A:** Total benefit of this public good is less than the total cost, so society should produce less of the good.
2. **Option B:** Total benefit of this public good is greater than the total cost, so society should produce more of the good.
3. **Option C:** Marginal benefit of this public good is greater than the marginal cost, so society should produce less of the good.
4. **Option D:** Marginal benefit of this public good is less than the marginal cost, so society should produce less of the good.

Use the graph interactions and labeled areas to determine the correct approach for producing this public good.
Transcribed Image Text:### Supply and Demand Graph for a Public Good The graph illustrates the interaction between supply and demand for a public good. The vertical axis represents the price level, while the horizontal axis shows the collective quantity demanded and supplied. #### Key Elements: - **Demand Curve (Dc):** Downward-sloping, indicating that as the price decreases, the quantity demanded increases. - **Supply Curve (S):** Upward-sloping, suggesting that as the price increases, the quantity supplied increases. - **Equilibrium Quantity (Q3):** The current production quantity of the public good. - **Price Levels:** - **P1, P2, P3, P4:** Different price points at which the supply and demand curves intersect various quantities (Q1, Q2, Q3, Q4). - **Areas Marked:** - **a, b, c, d, e, f:** Represent sections of the supply and demand that can help analyze costs and benefits at different quantities and price levels. #### Analysis Questions Analyze the graph in relation to the production of a public good at quantity Q3. Based on this quantity: 1. **Option A:** Total benefit of this public good is less than the total cost, so society should produce less of the good. 2. **Option B:** Total benefit of this public good is greater than the total cost, so society should produce more of the good. 3. **Option C:** Marginal benefit of this public good is greater than the marginal cost, so society should produce less of the good. 4. **Option D:** Marginal benefit of this public good is less than the marginal cost, so society should produce less of the good. Use the graph interactions and labeled areas to determine the correct approach for producing this public good.
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