The Figure Below Shows the Supply and Demand Curves for Jeans

Multiple Choice

The figure below shows the supply and demand curves for jeans in Smallville. The equilibrium price will NOT lead to the largest possible total economic surplus if:

A) jeans are purchased by consumers with reservation prices greater than $40.
B) the market for jeans is perfectly competitive.
C) the production of jeans generates air pollution.
D) there are diminishing returns in the production of jeans.