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

question 125

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:

Economy

The system by which a country's money and goods are produced and used, encompassing production, distribution, and consumption.

Tax-Transfer System

The mechanism through which governments collect taxes from individuals and businesses and redistribute the revenue in the form of government spending or transfers.

Progressive

Relating to progressive policies or taxes, which are designed to have a greater impact on those who are able to pay more.

U.S. Tax System

A system governing how taxes are collected from individuals and businesses by the federal, state, and local governments in the United States, covering income, sales, property, and other taxes.