Refer to the Competitive Market Diagram for Product Z

question 216

Multiple Choice

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external costs associated with the
Production of Z, then

• A) a price lower than B and an output greater than G would improve resource allocation.
• B) government should levy a per-unit excise tax on Z to shift the demand curve to the right.
• C) government should levy a per-unit excise tax on Z to shift the supply curve toward S1.
• D) government should subsidize the production of Z to lower equilibrium price and increase equilibrium output.

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Definitions:

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