Suppose That Electricity Producers Create a Negative Externality Equal to $5

Multiple Choice

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

A) They are equal.
B) The after-tax equilibrium quantity is greater than the socially optimal quantity.
C) The after-tax equilibrium quantity is less than the socially optimal quantity.
D) There is not enough information to answer the question.