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 costs associated with the production of Z, then

A) a price lower than B and an output greater than G would improve resource allocation.
B) government should levy a per-unit excise tax on Z to shift the demand curve to the right.
C) government should levy a per-unit excise tax on Z to shift the supply curve toward S₁.
D) government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.