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

question 131

Multiple Choice

Use the figure below to answer the following question(s) .
Figure 5-2

Figure 5-2 illustrates the market for a product that generates an external cost. S₁ is the private market supply curve, while S₂ is the supply curve including the external cost. 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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