Multiple Choice
Use the figure below to answer the following question(s) .
Figure 5-2
Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the private market supply curve, while S2 is the supply curve including the external cost. Which of the following is true?
A) Relative to economic efficiency, output of the good will be too large and the price too low.
B) Relative to economic efficiency, output of the good will be too large and the price too high.
C) Relative to economic efficiency, output of the good will be too small and the price too low.
D) Relative to economic efficiency, output of the good will be too small and the price too high.
Correct Answer:
Verified
Correct Answer:
Verified
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