Refer to the Competitive Market Diagram for Product Z

question 15

Multiple Choice

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external benefits associated with the
Production of Z, then

• A) government can improve the allocation of resources by subsidizing consumers of Z.
• B) government can improve the allocation of resources by imposing a per-unit tax on Z.
• C) a government subsidy for producers of Z would ensure that consumers are paying directly for all of the benefits they receive from Z.
• D) consumers are paying too much for the good.

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