Refer to the Diagram, in Which S Is the Market

question 100

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 reach

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

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Definitions:

Liability Account

An accounting category used for recording debts or obligations that a company owes to others, typically excluding equity or ownership stakes.

Accounts Payable

Debts a company incurs from acquiring goods and services on credit, which are due to be paid to creditors.

Salaries Expense

The total amount paid to employees for services rendered during a specific period, reported on the income statement.

Credit Balance

The amount of money in a financial account that indicates a creditor's position; it can also mean the positive balance in a customer's account.