Refer to the Diagram, in Which S Is the Market

Multiple Choice

Refer to the diagram, in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach

A) an optimal allocation of society's resources.
B) an underallocation of resources to this product.
C) an overallocation of resources to this product.
D) a higher price than is consistent with an optimal allocation of resources.