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

question 130

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) Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency.
• B) Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency.
• C) The competitive private market outcome is consistent with the conditions for economic efficiency.
• D) The good will tend to be undersupplied relative to the conditions for economic efficiency.

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Definitions:

Net Income

Company's earnings following the deduction of all expenses and taxes from total revenue.

Capital Intensity Ratio

A financial metric that estimates the amount of investment in capital assets a company needs relative to its labor force to generate revenue.

Maximum Capacity

The highest level of output that a company can sustain to produce in a given period under normal conditions.

Proportional

Proportional refers to a relationship or distribution where quantities maintain the same relative size or ratio to each other, often applied in financial contexts like taxation or distribution of profits.