The correctly labeled graph which shows the quantity of antivirus software purchased, the socially optimal quantity of antivirus software,
Explanation of Solution
The graph for the quantity of antivirus software:
The vertical axis of the graph represents the marginal social benefit and price of antivirus software and the horizontal axis shows the quantity of antivirus software. The supply curve which is equal to the marginal cost curve indicates an upward slope because when there is no external cost, then the marginal private cost is equal to the marginal
And, the socially optimal quantity of antivirus software in the market is at the point of QQPT where the supply curve and marginal social benefit curve intersect and this quantity is shown on the horizontal axis.
In this case, two different government policies that could bring about an optimal quantity of antivirus software would consider:
Pigouvian subsidy: At the socially optimal quantity of antivirus software, the Pigouvian subsidy would be equal to the marginal external benefit at the optimal quantity.
Policy of optimal quantity: The government regulation would require the optimal quantity of antivirus software where marginal social benefits and costs are equal.
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. When demand and supply go out of equilibrium due to market inefficiencies, then it is a situation of deadweight loss.
Chapter 75 Solutions
Krugman's Economics For The Ap® Course
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