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A-Level Economics · Negative production externality diagram question

Which distance shows the MARGINAL EXTERNAL COST of the LAST unit the free market produces?

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The diagram

The answer

The distance E G. MSC minus MPC at Q=5: the £4 of damage the market's last unit dumps on third parties. MEC = the VERTICAL gap between MSC and MPC at the quantity in question. At the market output (Q=5) that's E up to G: £4 of harm nobody pays for.

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This is one of 5 questions on the negative production externality diagram — every corner lettered, every wrong answer diagnosed.

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