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 D₂ and S₂. If there are substantial external benefits associated with the production of Z, then

A) efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits.
B) an output smaller than G would improve resource allocation.
C) government should levy a per-unit excise tax on Z to shift the demand curve toward D₁.
D) an output greater than G would result in a more efficient allocation of resources.