The graph shows the market for North Atlantic tuna. Price and cost (dollars per

Question

The graph shows the market for North Atlantic tuna. Price and cost (dollars per ton) MSC The quantity of tuna that fishers catch isthousand tons a month. The price of a ton of tuna is$ The tuna stock is being used because at the equilibrium quantity 300- 250 0 A. inefficiently; marginal social cost exceeds marginal social benefit B. inefficient y: marginal social benefit exceeds marginal social cost C. efficiently, marginal social benefit equals marginal social cost 0 D. efficiently, marginal private cost equals marginal social benefit MC 150 When the stock of tuna is used eficiently, the price of a ton of tuna is s 50- MSB 40 80 Quantity (thousands of tons per month) 120 160

Explanation / Answer

(1) Private equilibrium is at intersection of MSB and MC.

Quantity of tuna fishermen catch = 80 thousand

Price = $100

(2) Option (A)

At private equilibrium, MSC = $300 and MSB = $100, so MSC > MSB and there is inefficiency.

(3) When stock of tuna is used efficiently, Price = $150

Efficient outcome is at intersection of MSB and MSC curves where quantity = 40 thousand and Price = $150.

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