Economics 0455 · IGCSE · Market failure

Market failure — practice question

The diagram illustrates the market for petrol (gasoline). $S_p$ represents the supply of petrol based on the private cost of petrol production and $S_s$ represents the supply of petrol based on the social cost of production. Which distance represents the market failure caused by the production of petrol?

  • A$OQ_1$
  • B$OQ_2$
  • C$Q_2Q_1$
  • D$Q_3Q_1$

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