Refer to the Competitive Market Diagram for Product Z

Multiple Choice

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₁ and S₁. If there are substantial external benefits associated with the production of Z, then

A) government can improve the allocation of resources by subsidizing consumers of Z.
B) government can improve the allocation of resources by imposing a per-unit tax on Z.
C) a government subsidy for producers of Z would ensure that consumers are paying directly for all of the benefits they receive from Z.
D) consumers are paying too much for the good.