Use the Figure Below to Answer the Following Question(s)

question 46

Multiple Choice

Use the figure below to answer the following question(s) .
Figure 5-3

Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

• A) Relative to economic efficiency, output of the good will be too large and the price too low.
• B) Relative to economic efficiency, output of the good will be too large and the price too high.
• C) Relative to economic efficiency, output of the good will be too small and the price too low.
• D) Relative to economic efficiency, output of the good will be too small and the price too high.

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Definitions:

Recoverable Amount

The higher of an asset's fair value less costs to sell and its value in use, indicating the maximum amount that can be recovered from an asset.

Financial Statements

Documents that provide an overview of a company's financial condition, including income statement, balance sheet, and cash flow statement.

Cash-generating Unit

The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.

Average Tax Rate

The proportion of total income that an individual or corporation pays in taxes.