For this question, refer to Figure 4 and the lettered indices below (for example, EFJ is the triangle made by those three points). Country I and Country II are considering a side-payments scheme to increase conservation. Country I is the local conservation provider, and so all costs fall upon Country I. However, both countries receive benefits from the conservation.

Figure 4: External Benefits to Conservation

What is the net increase in global net benefits of conserving at the global optimum relative to Country I’s private optimum in Figure 4 above?

Question

For this question, refer to Figure 4 and the lettered indices below (for example, EFJ is the triangle made by those three points). Country I and Country II are considering a side-payments scheme to increase conservation. Country I is the local conservation provider, and so all costs fall upon Country I. However, both countries receive benefits from the conservation.

Figure 4: External Benefits to Conservation

What is the net increase in global net benefits of conserving at the global optimum relative to Country I’s private optimum in Figure 4 above?

BlackTom AI · Accepted Answer

The social marginal benefit is MB_I + MB_II and the social (global) optimum Q0 is where MB_I + MB_II = MC_I. Country I’s private optimum Q_I is where MB_I = MC_I. The net increase in global net benefits from moving from Q_I to Q0 is the area ∫_{Q_I}^{Q0} [(MB_I + MB_II) − MC_I] dQ.

Step-by-step reasoning:
1) Identify optima: At Q_I: MB_I = MC_I (Country I’s private choice). At Q0: MB_I + MB_II = MC_I (global optimum).  
2) Write the welfare gain from increasing conservation from Q_I to Q0:
   ΔW = ∫_{Q_I}^{Q0} [(MB_I + MB_II) − MC_I] dQ.
3) Use the fact that at Q_I the curves meet so visually the incremental area between Q_I and Q0 is bounded above by the combined marginal benefit curve (MB_I + MB_II) and below by the marginal cost curve MC_I. That area is exactly the region shown in the figure between those two curves for the horizontal span Q_I → Q0.
4) Translate to the labelled regions: along the left vertical at Q_I, B is the point on MB_I (=MC_I). At the right vertical at Q0, E is the intersection of MB_I + MB_II and MC_I. G is the point on MB_I at Q0. Thus the triangle formed by B–E–G is the geometric area representing ∫_{Q_I}^{Q0} [(MB_I + MB_II) − MC_I] dQ. That triangle captures the extra combined benefits net of marginal cost over the interval Q_I to Q0.

Why other options are incorrect:
- HFCA, HGBA, DEB, ABGH correspond to regions under other curve pairs (e.g., under MC alone, under MB_II alone, or combinations that include baseline areas from 0 to Q_I) and do not represent the net global surplus gain from Q_I to Q0. They either include areas before Q_I or omit the correct vertical boundaries and so do not equal the integral above.

Conclusion: The net increase in global net benefits moving from Country I’s private optimum to the global optimum is the area BEG, matching the provided correct answer BEG.

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