Question

The supply curve for an artificially scarce good is .

• A. A vertical line at a price of zero
• B. A vertical line at the market price
• C. A horizontal line at a price of zero
• D. A horizontal line at the market price

Hint:

Think about the marginal cost of adding one more user to a non-rival good.

Answer 1

The Correct Option is C

Step 1: Goods are classified by two features: rivalry (does one person's use reduce what is left for others) and excludability (can non-payers be kept out). Step 2: A good that is non-rival but excludable is called a club good, also described as an artificially scarce good, because once it is produced, letting one more person use it costs nothing extra, yet a price is charged to exclude some users. Step 3: Since the marginal cost of serving another user is zero, the economically efficient price is also zero, so the supply curve showing marginal cost sits flat along the zero-price level for any quantity. Step 4: That matches a horizontal line at a price of zero, so option 3 is correct.