Refer to the Diagram in Which S Is the Market

question 2

Multiple Choice

Refer to the diagram in which S is the market supply curve and S₁ is a supply curve comprising all costs of production, including external costs.Assume that the number of people affected by these external costs is large.Without government interference, this market will result in:

• A)an optimal allocation of society's resources.
• B)an under-allocation of resources to this product.
• C)an over-allocation of resources to this product.
• D)a higher price than is consistent with an optimal allocation of resources.

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